UNITED STATES |
SECURITIES AND EXCHANGE COMMISSION |
WASHINGTON, D.C. 20549 |
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FORM N-CSR |
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CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT |
INVESTMENT COMPANIES |
INVESTMENT COMPANY ACT FILE NUMBER 811-3967 |
FIRST INVESTORS INCOME FUNDS |
(Exact name of registrant as specified in charter) |
110 Wall Street |
New York, NY 10005 |
(Address of principal executive offices) (Zip code) |
Joseph I. Benedek |
First Investors Management Company, Inc. |
Raritan Plaza I |
Edison, NJ 08837-3620 |
(Name and address of agent for service) |
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: |
1-212-858-8000 |
DATE OF FISCAL YEAR END: SEPTEMBER 30, 2012 |
DATE OF REPORTING PERIOD: SEPTEMBER 30, 2012 |
Item 1. | Reports to Stockholders |
The annual report to stockholders follows |
FOREWORD |
This report is for the information of the shareholders of the Funds. It is the policy of each Fund described in this report to mail only one copy of a Fund’s prospectus, annual report, semi-annual report and proxy statements to all shareholders who share the same mailing address and share the same last name and have invested in a Fund covered by the same document. You are deemed to consent to this policy unless you specifically revoke this policy and request that separate copies of such documents be mailed to you. In such case, you will begin to receive your own copies within 30 days after our receipt of the revocation. You may request that separate copies of these disclosure documents be mailed to you by writing to us at: Administrative Data Management Corp., Raritan Plaza I, Edison, NJ 08837-3620 or calling us at 1-800-423-4026.
You may obtain a free prospectus for any of the Funds by contacting your representative, calling 1-800-423-4026, writing to us at the following address: First Investors Corporation, 110 Wall Street, New York, NY 10005, or by visiting our website at www.firstinvestors.com. You should consider the investment objectives, risks, charges and expenses of a Fund carefully before investing. The prospectus contains this and other information about the Fund, and should be read carefully before investing.
An investment in a Fund is not a bank deposit and is not insured or guaranteed by the Federal Deposit Insurance Corporation (FDIC) or any other government agency. Although the Cash Management Fund seeks to preserve a net asset value at $1.00 per share, it is possible to lose money by investing in it, just as it is possible to lose money by investing in any of the other Funds. Past performance is no guarantee of future results.
A Statement of Additional Information (“SAI”) for any of the Funds may also be obtained, without charge, upon request by calling 1-800-423-4026, writing to us at our address or by visiting our website listed above. The SAI contains more detailed information about the Funds, including information about its Trustees.
Portfolio Manager’s Letter
CASH MANAGEMENT FUND
Dear Investor:
This is the annual report for the First Investors Cash Management Fund for the fiscal year ended September 30, 2012. During the period, the Fund’s return on a net asset value basis was 0.0% for Class A shares and Class B shares. The Fund maintained a $1.00 net asset value per share for each class of shares throughout the year.
The last few years have been difficult for investors in money market funds, as the Federal Reserve (“the Fed”) has maintained interest rates at record lows since late 2008. Furthermore, the Fed has indicated its intention to keep rates near zero until mid-2015. As this environment has persisted for several years and is fully expected to continue for a few more, the money market yield curve remains remarkably flat. As a result, there is only a marginal difference between shorter maturity investments and those with longer maturities.
The Fund maintained a significant amount of liquidity with more than 25% of its assets considered liquid within one day and a weighted average maturity of 40 days as of September 30, 2012. Money market product and quality spreads have compressed sharply given the massive amount of liquidity in the market, hence risk was barely compensated. For this reason, the Fund has had greater-than-average exposure to U.S. Treasury and agency securities, which are generally considered the lowest risk investments available.
First Investors Management Company (“FIMCO”), the Fund’s investment advisor, continued to absorb expenses to the Fund and waived management fees in an effort to avoid a negative yield to its shareholders. In addition, in an effort to mitigate expenses, certain shareholder privileges remained limited. FIMCO expects this situation to continue and consequently, the yield to shareholders should be at or near zero for the foreseeable future.
Thank you for placing your trust in First Investors. As always, we appreciate the opportunity to serve your investment needs.
Although money market funds, in general, are relatively conservative vehicles, there can be no assurance that the Fund will be able to maintain a stable net asset value of $1.00 per share. Money market mutual funds are neither insured nor guaranteed by the Federal Deposit Insurance Corporation (FDIC) or any other government agency.
1 |
Understanding Your Fund’s Expenses (unaudited)
FIRST INVESTORS INCOME FUNDS
FIRST INVESTORS EQUITY FUNDS
As a mutual fund shareholder, you incur two types of costs: (1) transaction costs, including a sales charge (load) on purchase payments (on Class A shares only) and a contingent deferred sales charge on redemptions (on Class B shares only); and (2) ongoing costs, including advisory fees; distribution and service fees (12b-1); and other expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Funds and to compare these costs with the ongoing costs of investing in other mutual funds.
The examples are based on an investment of $1,000 in each Fund at the beginning of the period, April 1, 2012, and held for the entire six-month period ended September 30, 2012. The calculations assume that no shares were bought or sold during the period. Your actual costs may have been higher or lower, depending on the amount of your investment and the timing of any purchases or redemptions.
Actual Expenses Example:
These amounts help you to estimate the actual expenses that you paid over the period. The “Ending Account Value” shown is derived from the Fund’s actual return, and the “Expenses Paid During Period” shows the dollar amount that would have been paid by an investor who started with $1,000 in the Fund. You may use the information here, together with the amount you invested, to estimate the expenses that you paid over the period.
To estimate the expenses you paid on your account during this period, simply divide your ending account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.60), then multiply the result by the number given for your Fund under the heading “Expenses Paid During Period”.
Hypothetical Expenses Example:
These amounts provide information about hypothetical account values and hypothetical expenses based on the Fund’s actual expense ratio for Class A and Class B shares, and an assumed rate of return of 5% per year before expenses, which is not the Fund’s actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight and help you compare your ongoing costs only and do not reflect any transaction costs, such as front-end or contingent deferred sales charges (loads). Therefore, the hypothetical expenses example is useful in comparing ongoing costs only and will not help you determine the relative total costs of owning different funds. In addition, if these transaction costs were included, your costs would have been higher.
2 |
Fund Expenses (unaudited)
CASH MANAGEMENT FUND
The examples below show the ongoing costs (in dollars) of investing in your Fund and will help you in comparing these costs with costs of other mutual funds. Please refer to page 2 for a detailed explanation of the information presented in these examples.
Beginning | Ending | ||
Account | Account | Expenses Paid | |
Value | Value | During Period | |
(4/1/12) | (9/30/12) | (4/1/12–9/30/12)* | |
Expense Example – Class A Shares | |||
Actual | $1,000.00 | $1,000.00 | $0.70 |
Hypothetical | |||
(5% annual return before expenses) | $1,000.00 | $1,024.30 | $0.71 |
Expense Example – Class B Shares | |||
Actual | $1,000.00 | $1,000.00 | $0.70 |
Hypothetical | |||
(5% annual return before expenses) | $1,000.00 | $1,024.30 | $0.71 |
* | Expenses are equal to the annualized expense ratio of .14% for Class A shares and .14% for Class B |
shares, multiplied by the average account value over the period, multiplied by 183/366 (to reflect the | |
one-half year period). Expenses paid during the period are net of expenses waived and/or assumed. |
Portfolio Composition
BY SECTOR
Portfolio holdings and allocations are subject to change. Percentages are as of September 30, 2012, |
and are based on the total value of investments. |
3 |
Portfolio of Investments
CASH MANAGEMENT FUND
September 30, 2012
Principal | Interest | ||||||
Amount | Security | Rate | * | Value | |||
U.S. GOVERNMENT AGENCY | |||||||
OBLIGATIONS—43.7% | |||||||
$8,000M | Fannie Mae, 12/26/2012 | 0.13 | % | $ 7,997,611 | |||
Federal Home Loan Bank: | |||||||
5,000M | 10/3/12 | 0.11 | 4,999,969 | ||||
6,500M | 10/10/12 | 0.11 | 6,499,829 | ||||
9,000M | 10/15/12 | 0.11 | 8,999,632 | ||||
6,000M | 11/21/12 | 0.12 | 5,999,022 | ||||
4,923M | 12/5/12 | 0.14 | 4,921,800 | ||||
5,000M | 12/14/12 | 0.14 | 4,998,612 | ||||
3,000M | 12/17/12 | 0.08 | 2,999,487 | ||||
1,185M | 12/21/12 | 0.14 | 1,184,627 | ||||
3,750M | 7/17/13 | 0.27 | 3,750,929 | ||||
Freddie Mac: | |||||||
1,000M | 10/15/12 | 0.10 | 999,961 | ||||
6,000M | 12/17/12 | 0.13 | 5,998,396 | ||||
Total Value of U.S. Government Agency Obligations (cost $59,349,875) | 59,349,875 | ||||||
VARIABLE AND FLOATING RATE NOTES—19.7% | |||||||
Federal Farm Credit Bank: | |||||||
5,100M | 3/6/13 | 0.26 | 5,100,330 | ||||
3,000M | 9/16/13 | 0.39 | 3,005,821 | ||||
1,000M | 10/15/13 | 0.28 | 1,000,945 | ||||
Freddie Mac: | |||||||
1,290M | 10/12/12 | 0.28 | 1,290,035 | ||||
4,800M | 3/21/13 | 0.18 | 4,800,930 | ||||
5,700M | Mississippi Business Finance Corp. | ||||||
(Chevron USA, Inc.), 12/1/2030 | 0.20 | 5,700,000 | |||||
5,835M | Valdez, Alaska Marine Terminal Rev. | ||||||
(Exxon Pipeline Co., Project B), 12/1/2033 | 0.20 | 5,835,000 | |||||
Total Value of Variable and Floating Rate Notes (cost $26,733,061) | 26,733,061 | ||||||
CORPORATE NOTES—17.1% | |||||||
5,000M | Coca-Cola Co., 10/4/2012 (a) | 0.23 | 4,999,904 | ||||
2,000M | Google, Inc., 10/24/2012 (a) | 0.12 | 1,999,847 | ||||
Johnson & Johnson: | |||||||
2,300M | 10/4/12 (a) | 0.15 | 2,299,971 | ||||
3,000M | 11/19/12 (a) | 0.09 | 2,999,633 | ||||
5,000M | Procter & Gamble Co., 10/29/2012 (a) | 0.14 | 4,999,455 | ||||
6,000M | Wal-Mart Stores, Inc., 10/5/2012 (a) | 0.11 | 5,999,927 | ||||
Total Value of Corporate Notes (cost $23,298,737) | 23,298,737 |
4 |
Principal | Interest | ||||||
Amount | Security | Rate | * | Value | |||
SHORT-TERM U.S. GOVERNMENT | |||||||
OBLIGATIONS—18.4% | |||||||
U.S. Treasury Bills: | |||||||
$3,000M | 10/18/12 | 0.08 | % | $ 2,999,887 | |||
7,500M | 10/25/12 | 0.10 | 7,499,504 | ||||
5,500M | 11/1/12 | 0.09 | 5,499,597 | ||||
3,000M | 11/15/12 | 0.09 | 2,999,663 | ||||
6,000M | 12/13/12 | 0.08 | 5,998,978 | ||||
Total Value of Short-Term U.S. Government Obligations (cost $24,997,629) | 24,997,629 | ||||||
Total Value of Investments (cost $134,379,302)** | 98.9 | % | 134,379,302 | ||||
Other Assets, Less Liabilities | 1.1 | 1,544,011 | |||||
Net Assets | 100.0 | % | $135,923,313 |
* | The interest rates shown are the effective rates at the time of purchase by the Fund. The interest |
rates shown on variable and floating rate notes are adjusted periodically; the rates shown are the | |
rates in effect at September 30, 2012. | |
** | Aggregate cost for federal income tax purposes is the same. |
(a) | Security exempt from registration under Section 4(2) of the Securities Act of 1933 (see Note 4). |
5 |
Portfolio of Investments (continued)
CASH MANAGEMENT FUND
September 30, 2012
Accounting Standards Codification (“ASC”) 820 established a three-tier hierarchy of inputs to establish a classification of fair value measurements for disclosure purposes. The three-tier hierarchy of inputs is summarized in the three broad Levels listed below:
Level 1 — Unadjusted quoted prices in active markets for identical securities that the Fund has the ability to access. |
Level 2 — Observable inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. These inputs may include quoted prices for the identical instrument on an inactive market, prices for similar instruments, interest rates, prepayment speeds, credit risk, yield curves, default rates and similar data. |
Level 3 — Unobservable inputs for the asset or liability, to the extent relevant observable inputs are not available, representing the Fund’s own assumption about the assumptions a market participant would use in valuing the asset or liability, and would be based on the best information available. |
The inputs methodology used for valuing securities are not necessarily an indication of the risk associated with investing in those securities.
The following is a summary, by category of Level, of inputs used to value the Fund’s investments as of September 30, 2012:
Level 1 | Level 2 | Level 3 | Total | |||||||||
U.S. Government Agency | ||||||||||||
Obligations | $ | — | $ | 59,349,875 | $ | — | $ | 59,349,875 | ||||
Variable and Floating Rate Notes: | ||||||||||||
Municipal Bonds | — | 11,535,000 | — | 11,535,000 | ||||||||
U.S. Government Agency | ||||||||||||
Obligations | — | 15,198,061 | — | 15,198,061 | ||||||||
Corporate Notes | — | 23,298,737 | — | 23,298,737 | ||||||||
Short-Term U.S. Government | ||||||||||||
Obligations | — | 24,997,629 | — | 24,997,629 | ||||||||
Total Investments in Securities | $ | — | $ | 134,379,302 | $ | — | $ | 134,379,302 |
There were no transfers into or from Level 1 or Level 2 by the Fund during the year ended |
September 30, 2012. Transfers, if any, between Levels are recognized at the end of the |
reporting period. |
6 | See notes to financial statements |
Portfolio Manager’s Letter
GOVERNMENT FUND
Dear Investor:
This is the annual report for the First Investors Government Fund for the fiscal year ended September 30, 2012. During the period, the Fund’s return on a net asset value basis was 2.7% for Class A shares and 2.1% for Class B shares, including dividends of 37.9 cents per share on Class A shares and 30.2 cents per share on Class B shares.
The Fund’s performance was driven mainly by broad economic trends that affected the fixed income markets in general. Long-term interest rates continued their multi-year decline during the review period, falling to all-time lows in July before rising slightly. Several factors contributed to this low interest rate environment: the Federal Reserve’s (“the Fed’s”) very accommodative monetary policy, the subpar economic recovery, and safe haven flows from overseas into the U.S. bond market. Reviewing benchmark U.S. Treasury yields, the two-year U.S. Treasury note yield, which is anchored by the Fed’s commitment to keep short-term rates very low, barely moved during the review period, ending at 0.23%. The 10-year U.S. Treasury note yield fell from 1.92% to 1.63%.
The broad U.S. bond market returned 5.4%, according to Bank of America Merrill Lynch. Riskier fixed-income sectors had very strong performance, as the Fed’s success in depressing risk-free yields forced investors to take more risk. Consequently, high yield — or “junk” bonds — returned 18.9% and investment grade corporate bonds gained close to 11%. Higher quality sectors had notably lower, although positive, returns. The broad mortgage-backed securities market returned 3.7%. Of note, 30-year mortgage rates fell to an all-time low. The Treasury market returned 3.2%, although Treasury securities with maturities ten years and longer were up over 6% due to the decline in long-term interest rates.
The Fund’s benchmark, the Bank of America Merrill Lynch Ginnie Mae (“GNMA”) Index, returned 4.1% for the review period. Approximately 95% of the Fund is invested in GNMA mortgage-backed bonds. Within the GNMA market, lower coupon GNMA mortgage-backed bonds substantially outperformed higher coupon bonds. This reflected several factors. First, lower coupon mortgage-backed bonds have greater interest rate sensitivity so they benefited more from the decline in long-term interest rates. Second, elevated prepayments on mortgage-backed bonds, as homeowners took advantage of record low mortgage rates to refinance outstanding higher interest-rate mortgages, hurt the returns of higher coupon mortgage-backed bonds more than those of lower coupons. Third, the Fed initiated an open-ended program to buy mortgage-backed securities in September in order to lower interest rates and help spur the economy. The program focused on purchasing lower coupon mortgage-backed bonds, thus contributing to their outperformance.
7 |
Portfolio Manager’s Letter (continued)
GOVERNMENT FUND
The Fund underperformed its benchmark due to an underweight in lower coupon mortgage-backed bonds and a commensurate overweight in higher coupon mortgage-backed bonds. At the end of the review period, the Fund had an 18% underweight in GNMA 3%–3.5% coupons, the lowest actively traded coupons, and overweights in 4%–6% coupons. The underweight was intended to reduce the interest rate sensitivity of the Fund in order to protect shareholders from the negative impact of a potential rise in interest rates. In periods of falling interest rates, the Fund will normally underperform its benchmark, although the degree of underperformance in this review period was larger than expected due, in great measure, to the extraordinary actions taken by the Fed.
Thank you for placing your trust in First Investors. As always, we appreciate the opportunity to serve your investment needs.
8 |
Fund Expenses (unaudited)
GOVERNMENT FUND
The examples below show the ongoing costs (in dollars) of investing in your Fund and will help you in comparing these costs with costs of other mutual funds. Please refer to page 2 for a detailed explanation of the information presented in these examples.
Beginning | Ending | ||
Account | Account | Expenses Paid | |
Value | Value | During Period | |
(4/1/12) | (9/30/12) | (4/1/12–9/30/12)* | |
Expense Example – Class A Shares | |||
Actual | $1,000.00 | $1,014.21 | $5.54 |
Hypothetical | |||
(5% annual return before expenses) | $1,000.00 | $1,019.50 | $5.55 |
Expense Example – Class B Shares | |||
Actual | $1,000.00 | $1,011.69 | $9.05 |
Hypothetical | |||
(5% annual return before expenses) | $1,000.00 | $1,016.00 | $9.07 |
* | Expenses are equal to the annualized expense ratio of 1.10% for Class A shares and 1.80% for |
Class B shares, multiplied by the average account value over the period, multiplied by 183/366 (to | |
reflect the one-half year period). Expenses paid during the period are net of expenses waived. |
Portfolio Composition
BY SECTOR
Portfolio holdings and allocations are subject to change. Percentages are as of September 30, 2012, |
and are based on the total value of investments. |
9 |
Cumulative Performance Information (unaudited)
GOVERNMENT FUND
Comparison of change in value of $10,000 investment in the First Investors Government Fund (Class A shares) and the Bank of America (“BofA”) Merrill Lynch GNMA Master Index.
The graph compares a $10,000 investment in the First Investors Government Fund (Class A shares) beginning 9/30/02 with a theoretical investment in the BofA Merrill Lynch GNMA Master Index (the “Index”). The Index is a market capitalization-weighted index of securities backed by mortgage pools of the Government National Mortgage Association (GNMA). It is not possible to invest directly in this Index. In addition, the Index does not reflect fees and expenses associated with the active management of a mutual fund portfolio. For purposes of the graph and the accompanying table, unless otherwise indicated, it has been assumed that the maximum sales charge was deducted from the initial $10,000 investment in the Fund and all dividends and distributions were reinvested. Class B shares performance may be greater than or less than that shown in the line graph above for Class A shares based on differences in sales loads and fees paid by shareholders investing in the different classes.
* Average Annual Total Return figures (for the periods ended 9/30/12) include the reinvestment of all dividends and distributions. “N.A.V. Only” returns are calculated without sales charges. The Class A “S.E.C. Standardized” returns shown are based on the maximum sales charge of 5.75%. The Class B “S.E.C. Standardized” returns are adjusted for the applicable deferred sales charge (maximum of 4% in the first year). During the periods shown, some of the expenses of the Fund were waived or assumed. If such expenses had been paid by the Fund, the Class A “S.E.C. Standardized” Average Annual Total Return for One Year, Five Years and Ten Years would have been (3.33%), 4.25% and 3.52%, respectively, and the S.E.C. 30-Day Yield for September 2012 would have been 1.63%. The Class B “S.E.C. Standardized” Average Annual Total Return for One Year, Five Years and Ten Years would have been (1.98%), 4.43% and 3.52%, respectively, and the S.E.C. 30-Day Yield for September 2012 would have been 1.05%. Results represent past performance and do not indicate future results. The graph and the returns shown do not reflect the deduction of taxes that a shareholder would pay on distributions or the redemption of fund shares. Investment return and principal value of an investment will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than the original cost. Index figures are from Bank of America Merrill Lynch & Co. and all other figures are from First Investors Management Company, Inc.
10 |
Portfolio of Investments
GOVERNMENT FUND
September 30, 2012
Principal | |||||||
Amount | Security | Value | |||||
RESIDENTIAL MORTGAGE-BACKED | |||||||
SECURITIES—99.4% | |||||||
Fannie Mae—4.0% | |||||||
$ 6,726M | 5%, 8/1/2039 – 11/1/2039 | $ 7,475,690 | |||||
7,035M | 5.5%, 7/1/2033 – 10/1/2039 | 7,854,375 | |||||
15,330,065 | |||||||
Government National Mortgage Association I | |||||||
Program—81.2% | |||||||
28,327M | 4%, 7/15/2040 – 1/15/2042 | 31,365,522 | |||||
118,478M | 4.5%, 9/15/2033 – 8/15/2041 | 130,942,463 | |||||
66,306M | 5%, 6/15/2033 – 6/15/2040 | 73,887,439 | |||||
34,336M | 5.5%, 3/15/2033 – 10/15/2039 | 38,531,878 | |||||
29,912M | 6%, 3/15/2031 – 5/15/2040 | 34,147,010 | |||||
2,222M | 6.5%, 6/15/2034 – 3/15/2038 | 2,643,558 | |||||
3,372M | 7%, 6/15/2023 – 4/15/2034 | 4,042,836 | |||||
315,560,706 | |||||||
Government National Mortgage Association II | |||||||
Program—14.2% | |||||||
50,187M | 4%, 3/20/2040 – 7/20/2042 | 55,295,324 | |||||
Total Value of Residential Mortgage-Backed Securities | |||||||
(cost $368,405,735) | 99.4 | % | 386,186,095 | ||||
Other Assets, Less Liabilities | .6 | 2,271,007 | |||||
Net Assets | 100.0 | % | $388,457,102 |
11 |
Portfolio of Investments (continued)
GOVERNMENT FUND
September 30, 2012
Accounting Standards Codification (“ASC”) 820 established a three-tier hierarchy of inputs to establish a classification of fair value measurements for disclosure purposes. The three-tier hierarchy of inputs is summarized in the three broad Levels listed below:
Level 1 — Unadjusted quoted prices in active markets for identical securities that the Fund has the ability to access. |
Level 2 — Observable inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. These inputs may include quoted prices for the identical instrument on an inactive market, prices for similar instruments, interest rates, prepayment speeds, credit risk, yield curves, default rates and similar data. |
Level 3 — Unobservable inputs for the asset or liability, to the extent relevant observable inputs are not available, representing the Fund’s own assumption about the assumptions a market participant would use in valuing the asset or liability, and would be based on the best information available. |
The inputs methodology used for valuing securities are not necessarily an indication of the risk associated with investing in those securities.
The following is a summary, by category of Level, of inputs used to value the Fund’s investments as of September 30, 2012:
Level 1 | Level 2 | Level 3 | Total | |||||||||
Residential Mortgage-Backed | ||||||||||||
Securities | $ | — | $ | 386,186,095 | $ | — | $ | 386,186,095 |
There were no transfers into or from Level 1 or Level 2 by the Fund during the year ended |
September 30, 2012. Transfers, if any, between Levels are recognized at the end of the |
reporting period. |
12 | See notes to financial statements |
Portfolio Managers’ Letter
INVESTMENT GRADE FUND
Dear Investor:
This is the annual report for the First Investors Investment Grade Fund for the fiscal year ended September 30, 2012. During the period, the Fund’s return on a net asset value basis was 11.2% for Class A shares and 10.4% for Class B shares, including dividends of 40.7 cents per share on Class A shares and 34.3 cents on Class B shares.
The Fund invests in investment grade fixed income securities. The majority of the Fund’s assets were invested in investment grade corporate bonds. The Fund also had as much as 5.5% of its assets invested in municipal bonds and 5% in mortgage-backed securities.
Long-term interest rates continued their multi-year decline during the review period, falling to all-time lows in July before rising slightly. Several factors contributed to this low interest-rate environment: the Federal Reserve’s (“the Fed’s”) very accommodative monetary policy, the subpar economic recovery, and safe haven flows from overseas into the U.S. bond market. Reviewing benchmark U.S. Treasury yields, the two-year U.S. Treasury note yield, which is anchored by the Fed’s commitment to keep short-term rates very low, barely moved during the review period, ending at 0.23%. The 10-year U.S. Treasury note yield fell from 1.92% to 1.63%.
The broad U.S. bond market returned 5.4%, according to Bank of America Merrill Lynch. Riskier fixed income sectors had very strong performance, as the Fed’s success in depressing risk-free yields forced investors to take more risk. Consequently, high yield — or “junk” bonds — returned 18.9% and investment grade corporate bonds gained close to 11%. Higher quality sectors had notably lower, although positive, returns. The broad mortgage-backed securities market returned 3.7%. Of note, 30-year mortgage rates fell to an all-time low. The Treasury market returned 3.2%, although Treasury securities with maturities ten years and longer, were up over 6%, due to the decline in long-term interest rates.
The review period began with continued confidence in the financial strength of corporate issuers. Deleveraging of corporate balance sheets, credit availability and accommodative monetary policy pointed toward a favorable outlook for investment grade corporate credit. The positive tone was somewhat offset by fallout from the European debt crisis and fear of a global economic slowdown. However, the Fed’s announcement of another round of quantitative easing, and the European Central Bank’s details of its bond-buying program, gave an indication to investors that global central banks were highly disposed toward continued monetary support. The constraint of low yields continued to dominate asset allocation behavior during the review period,
13 |
Portfolio Managers’ Letter (continued)
INVESTMENT GRADE FUND
favoring investment grade credit, particularly corporate bonds. By the end of the review period, demand for corporate credit continued to bring corporate spreads tighter. Corporate issuers continued to take advantage of historic low yields and were met with significant investor demand. The positive returns of the corporate bond market were led by falling interest rates and compressed bond spreads.
The Fund outperformed the Bank of America Merrill Lynch Corporate Index during the review period. The relative performance was predominantly a function of the Fund’s overweight in corporate bonds. Specifically, the Fund benefited from its overweight in BBB-rated corporate bonds, which had the highest returns during the review period. This was somewhat offset by the Fund’s underweight in corporate bonds with maturities greater than 10 years, which benefited from falling 30-year U.S. Treasury yields.
Thank you for placing your trust in First Investors. As always, we appreciate the opportunity to serve your investment needs.
14 |
Fund Expenses (unaudited)
INVESTMENT GRADE FUND
The examples below show the ongoing costs (in dollars) of investing in your Fund and will help you in comparing these costs with costs of other mutual funds. Please refer to page 2 for a detailed explanation of the information presented in these examples.
Beginning | Ending | ||
Account | Account | Expenses Paid | |
Value | Value | During Period | |
(4/1/12) | (9/30/12) | (4/1/12–9/30/12)* | |
Expense Example – Class A Shares | |||
Actual | $1,000.00 | $1,064.56 | $5.57 |
Hypothetical | |||
(5% annual return before expenses) | $1,000.00 | $1,019.60 | $5.45 |
Expense Example – Class B Shares | |||
Actual | $1,000.00 | $1,061.26 | $9.17 |
Hypothetical | |||
(5% annual return before expenses) | $1,000.00 | $1,016.10 | $8.97 |
* | Expenses are equal to the annualized expense ratio of 1.08% for Class A shares and 1.78% for |
Class B shares, multiplied by the average account value over the period, multiplied by 183/366 | |
(to reflect the one-half year period). Expenses paid during the period are net of expenses waived. |
Portfolio Composition
BY SECTOR
Portfolio holdings and allocations are subject to change. Percentages are as of September 30, 2012, |
and are based on the total value of investments. |
15 |
Cumulative Performance Information (unaudited)
INVESTMENT GRADE FUND
Comparison of change in value of $10,000 investment in the First Investors Investment Grade Fund (Class A shares) and the Bank of America (“BofA”) Merrill Lynch U.S. Corporate Master Index.
The graph compares a $10,000 investment in the First Investors Investment Grade Fund (Class A shares) beginning 9/30/02 with a theoretical investment in the BofA Merrill Lynch U.S. Corporate Master Index (the “Index”). The Index tracks the performance of U.S. dollar-denominated investment grade corporate public debt issued in the U.S. domestic bond market. Qualifying bonds must have at least one year remaining term to maturity, a fixed coupon schedule and a minimum amount outstanding of $250 million. Bonds must be rated investment grade based on a composite of Moody’s and S&P. It is not possible to invest directly in this Index. In addition, the Index does not reflect fees and expenses associated with the active management of a mutual fund portfolio. For purposes of the graph and the accompanying table, unless otherwise indicated, it has been assumed that the maximum sales charge was deducted from the initial $10,000 investment in the Fund and all dividends and distributions were reinvested. Class B shares performance may be greater than or less than that shown in the line graph above for Class A shares based on differences in sales loads and fees paid by shareholders investing in the different classes.
* Average Annual Total Return figures (for the periods ended 9/30/12) include the reinvestment of all dividends and distributions. “N.A.V. Only” returns are calculated without sales charges. The Class A “S.E.C. Standardized” returns shown are based on the maximum sales charge of 5.75%. The Class B “S.E.C. Standardized” returns are adjusted for the applicable deferred sales charge (maximum of 4% in the first year). During the periods shown, some of the expenses of the Fund were waived or assumed. If such expenses had been paid by the Fund, the Class A “S.E.C. Standardized” Average Annual Total Return for One Year, Five Years and Ten Years would have been 4.69%, 5.40% and 4.69%, respectively, and the S.E.C. 30-Day Yield for September 2012 would have been 1.89%. The Class B “S.E.C. Standardized” Average Annual Total Return for One Year, Five Years and Ten Years would have been 6.30%, 5.57% and 4.70%, respectively, and the S.E.C. 30-Day Yield for September 2012 would have been 1.32%. Results represent past performance and do not indicate future results. The graph and the returns shown do not reflect the deduction of taxes that a shareholder would pay on distributions or the redemption of fund shares. Investment return and principal value of an investment will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than the original cost. Index figures are from Bank of America Merrill Lynch & Co. and all other figures are from First Investors Management Company, Inc.
16 |
Portfolio of Investments
INVESTMENT GRADE FUND
September 30, 2012
Principal | ||||
Amount | Security | Value | ||
CORPORATE BONDS—98.3% | ||||
Aerospace/Defense—.3% | ||||
$1,800M | BAE Systems Holdings, Inc., 4.95%, 6/1/2014 (a) | $ 1,893,400 | ||
Agriculture—1.3% | ||||
2,725M | Cargill, Inc., 6%, 11/27/2017 (a) | 3,303,828 | ||
2,825M | CF Industries, Inc., 7.125%, 5/1/2020 | 3,552,437 | ||
6,856,265 | ||||
Automotive—.8% | ||||
4,000M | Daimler Finance NA, LLC, 2.95%, 1/11/2017 (a) | 4,215,800 | ||
Chemicals—.8% | ||||
4,000M | Dow Chemical Co., 4.25%, 11/15/2020 | 4,416,256 | ||
Consumer Durables—1.0% | ||||
1,550M | Newell Rubbermaid, Inc., 4.7%, 8/15/2020 | 1,705,756 | ||
3,000M | Stanley Black & Decker, 5.2%, 9/1/2040 | 3,446,445 | ||
5,152,201 | ||||
Energy—11.6% | ||||
3,900M | Canadian Oil Sands, Ltd., 7.75%, 5/15/2019 (a) | 4,920,665 | ||
4,800M | DCP Midstream, LLC, 9.75%, 3/15/2019 (a) | 6,177,758 | ||
5,000M | Enbridge Energy Partners, LP, 4.2%, 9/15/2021 | 5,419,580 | ||
4,000M | Kinder Morgan Energy Partners, LP, 3.45%, 2/15/2023 | 4,127,092 | ||
1,757M | Maritime & Northeast Pipeline, LLC, 7.5%, 5/31/2014 (a) | 1,869,037 | ||
4,000M | Nabors Industries, Inc., 6.15%, 2/15/2018 | 4,703,136 | ||
4,000M | ONEOK Partners, LP, 3.375%, 10/1/2022 | 4,027,968 | ||
5,000M | Petrobras International Finance Co., 5.375%, 1/27/2021 | 5,658,855 | ||
4,100M | Reliance Holdings USA, Inc., 4.5%, 10/19/2020 (a) | 4,209,134 | ||
5,800M | Spectra Energy Capital, LLC, 6.2%, 4/15/2018 | 7,023,603 | ||
4,400M | Suncor Energy, Inc., 6.85%, 6/1/2039 | 6,089,710 | ||
2,700M | Valero Energy Corp., 9.375%, 3/15/2019 | 3,671,795 | ||
4,000M | Weatherford International, Inc., 6.35%, 6/15/2017 | 4,661,912 | ||
62,560,245 |
17 |
Portfolio of Investments (continued)
INVESTMENT GRADE FUND
September 30, 2012
Principal | ||||
Amount | Security | Value | ||
Financial Services—13.7% | ||||
$2,250M | Aflac, Inc., 8.5%, 5/15/2019 | $ 3,017,671 | ||
6,000M | American Express Co., 7%, 3/19/2018 | 7,602,600 | ||
4,000M | American International Group, Inc., 4.875%, 9/15/2016 | 4,469,024 | ||
3,800M | Berkshire Hathaway, Inc., 3.4%, 1/31/2022 | 4,069,078 | ||
4,000M | BlackRock, Inc., 5%, 12/10/2019 | 4,760,476 | ||
3,510M | CoBank, ACB, 7.875%, 4/16/2018 (a) | 4,398,778 | ||
1,800M | Compass Bank, 6.4%, 10/1/2017 | 1,903,082 | ||
ERAC USA Finance Co.: | ||||
2,950M | 6.375%, 10/15/2017 (a) | 3,528,014 | ||
2,800M | 4.5%, 8/16/2021 (a) | 3,065,014 | ||
6,200M | Ford Motor Credit Co., LLC, 5%, 5/15/2018 | 6,784,183 | ||
General Electric Capital Corp.: | ||||
4,000M | 5.625%, 9/15/2017 | 4,715,836 | ||
2,700M | 5.5%, 1/8/2020 | 3,199,027 | ||
4,000M | Glencore Funding, LLC, 6%, 4/15/2014 (a) | 4,205,256 | ||
3,800M | Harley-Davidson Funding Corp., 5.75%, 12/15/2014 (a) | 4,144,223 | ||
4,000M | Liberty Mutual Group, Inc., 4.95%, 5/1/2022 (a) | 4,191,980 | ||
4,000M | Protective Life Corp., 7.375%, 10/15/2019 | 4,771,232 | ||
4,600M | Prudential Financial Corp., 4.75%, 9/17/2015 | 5,069,517 | ||
73,894,991 | ||||
Financials—17.8% | ||||
Bank of America Corp.: | ||||
1,900M | 5.65%, 5/1/2018 | 2,168,962 | ||
1,800M | 5%, 5/13/2021 | 1,982,020 | ||
900M | 5.875%, 2/7/2042 | 1,055,986 | ||
2,700M | Barclays Bank, PLC, 5.125%, 1/8/2020 | 3,039,582 | ||
3,168M | Bear Stearns Cos., Inc., 7.25%, 2/1/2018 | 3,957,710 | ||
Citigroup, Inc.: | ||||
3,400M | 6.375%, 8/12/2014 | 3,701,580 | ||
6,800M | 6.125%, 11/21/2017 | 8,010,162 | ||
2,000M | 4.5%, 1/14/2022 | 2,200,168 | ||
3,000M | Fifth Third Bancorp, 3.5%, 3/15/2022 | 3,204,642 | ||
Goldman Sachs Group, Inc.: | ||||
6,000M | 6.15%, 4/1/2018 | 7,011,384 | ||
1,900M | 5.75%, 1/24/2022 | 2,192,592 | ||
1,600M | 6.125%, 2/15/2033 | 1,803,744 | ||
2,750M | 6.75%, 10/1/2037 | 2,955,197 | ||
JPMorgan Chase & Co.: | ||||
6,000M | 6%, 1/15/2018 | 7,161,864 | ||
2,000M | 4.5%, 1/24/2022 | 2,222,766 |
18 |
Principal | ||||
Amount | Security | Value | ||
Financials (continued) | ||||
Merrill Lynch & Co., Inc.: | ||||
$4,000M | 5%, 1/15/2015 | $ 4,298,684 | ||
3,600M | 6.4%, 8/28/2017 | 4,192,592 | ||
Morgan Stanley: | ||||
5,800M | 5.95%, 12/28/2017 | 6,522,233 | ||
5,000M | 6.625%, 4/1/2018 | 5,751,415 | ||
6,000M | SunTrust Banks, Inc., 6%, 9/11/2017 | 6,995,070 | ||
6,000M | UBS AG, 4.875%, 8/4/2020 | 6,721,458 | ||
Wells Fargo & Co.: | ||||
4,000M | 5.625%, 12/11/2017 | 4,808,008 | ||
1,800M | 4.6%, 4/1/2021 | 2,082,901 | ||
1,800M | 3.5%, 3/8/2022 | 1,923,494 | ||
95,964,214 | ||||
Food/Beverage/Tobacco—8.2% | ||||
4,000M | Altria Group, Inc., 9.7%, 11/10/2018 | 5,736,292 | ||
4,000M | Anheuser-Busch InBev Worldwide, Inc., 5.375%, 1/15/2020 | 4,974,396 | ||
2,700M | Bottling Group, LLC, 5.125%, 1/15/2019 | 3,213,000 | ||
3,000M | Bunge Limited, Finance Corp., 3.2%, 6/15/2017 | 3,148,686 | ||
4,000M | Corn Products International, Inc., 4.625%, 11/1/2020 | 4,489,964 | ||
4,000M | Dr. Pepper Snapple Group, Inc., 6.82%, 5/1/2018 | 5,076,344 | ||
4,000M | Lorillard Tobacco Co., 6.875%, 5/1/2020 | 4,917,956 | ||
3,000M | Mead Johnson Nutrition Co., 4.9%, 11/1/2019 | 3,428,379 | ||
4,000M | Philip Morris International, Inc., 5.65%, 5/16/2018 | 4,906,564 | ||
4,000M | SABMiller Holdings, Inc., 3.75%, 1/15/2022 (a) | 4,352,320 | ||
44,243,901 | ||||
Forest Products/Container—.6% | ||||
2,200M | International Paper Co., 9.375%, 5/15/2019 | 2,978,789 | ||
Gaming/Leisure—.7% | ||||
4,000M | Marriott International, Inc., 3.25%, 9/15/2022 | 4,029,232 | ||
Health Care—3.3% | ||||
Aristotle Holding, Inc.: | ||||
2,700M | 4.75%, 11/15/2021 (a) | 3,129,916 | ||
1,350M | 3.9%, 2/15/2022 (a) | 1,473,665 | ||
4,000M | Biogen IDEC, Inc., 6.875%, 3/1/2018 | 4,926,672 |
19 |
Portfolio of Investments (continued)
INVESTMENT GRADE FUND
September 30, 2012
Principal | ||||
Amount | Security | Value | ||
Health Care (continued) | ||||
$4,000M | Laboratory Corp. of America Holdings, 3.75%, 8/23/2022 | $ 4,194,116 | ||
2,400M | Novartis Securities Investments, Ltd., 5.125%, 2/10/2019 | 2,887,889 | ||
1,000M | Roche Holdings, Inc., 6%, 3/1/2019 (a) | 1,257,217 | ||
17,869,475 | ||||
Information Technology—5.5% | ||||
3,500M | Corning, Inc., 4.75%, 3/15/2042 | 3,797,930 | ||
3,000M | Dell, Inc., 5.875%, 6/15/2019 | 3,555,429 | ||
4,000M | Harris Corp., 4.4%, 12/15/2020 | 4,355,072 | ||
5,000M | Motorola Solutions, Inc., 6%, 11/15/2017 | 5,974,175 | ||
4,000M | Pitney Bowes, Inc., 5.75%, 9/15/2017 | 4,364,500 | ||
4,000M | Symantec Corp., 3.95%, 6/15/2022 | 4,056,108 | ||
3,100M | Western Union Co., 6.2%, 11/17/2036 | 3,541,288 | ||
29,644,502 | ||||
Manufacturing—3.9% | ||||
3,000M | CRH America, Inc., 8.125%, 7/15/2018 | 3,652,578 | ||
2,700M | General Electric Co., 5.25%, 12/6/2017 | 3,198,285 | ||
4,000M | Ingersoll-Rand Global Holdings Co., Ltd., 6.875%, 8/15/2018 | 4,952,464 | ||
3,200M | Johnson Controls, Inc., 5%, 3/30/2020 | 3,646,813 | ||
2,725M | Tyco Electronics Group SA, 6.55%, 10/1/2017 | 3,298,983 | ||
2,500M | Tyco Flow Control International, Ltd., 3.15%, 9/15/2022 (a) | 2,514,215 | ||
21,263,338 | ||||
Media-Broadcasting—3.2% | ||||
3,950M | British Sky Broadcasting Group, PLC, 9.5%, 11/15/2018 (a) | 5,471,892 | ||
4,000M | Comcast Corp., 5.15%, 3/1/2020 | 4,766,024 | ||
3,000M | DirecTV Holdings, LLC, 5.15%, 3/15/2042 | 3,063,759 | ||
3,000M | Time Warner Entertainment Co., LP, 8.375%, 3/15/2023 | 4,234,491 | ||
17,536,166 | ||||
Media-Diversified—1.8% | ||||
McGraw-Hill Cos., Inc.: | ||||
1,800M | 5.9%, 11/15/2017 | 2,119,977 | ||
2,300M | 6.55%, 11/15/2037 | 2,783,674 | ||
4,000M | Vivendi SA, 6.625%, 4/4/2018 (a) | 4,667,120 | ||
9,570,771 |
20 |
Principal | ||||
Amount | Security | Value | ||
Metals/Mining—5.4% | ||||
$4,000M | Alcoa, Inc., 6.15%, 8/15/2020 | $ 4,421,220 | ||
4,000M | ArcelorMittal, 6.125%, 6/1/2018 | 3,978,492 | ||
3,800M | Newmont Mining Corp., 5.125%, 10/1/2019 | 4,341,603 | ||
5,000M | Rio Tinto Finance USA, Ltd., 3.75%, 9/20/2021 | 5,336,575 | ||
Vale Overseas, Ltd.: | ||||
4,000M | 5.625%, 9/15/2019 | 4,520,072 | ||
2,000M | 4.375%, 1/11/2022 | 2,112,322 | ||
4,000M | Xstrata Canada Financial Corp., 4.95%, 11/15/2021 (a) | 4,293,432 | ||
29,003,716 | ||||
Real Estate Investment Trusts—5.7% | ||||
5,000M | Boston Properties, LP, 5.875%, 10/15/2019 | 5,988,735 | ||
5,000M | Digital Realty Trust, LP, 5.25%, 3/15/2021 | 5,572,485 | ||
5,000M | HCP, Inc., 5.375%, 2/1/2021 | 5,713,845 | ||
4,000M | ProLogis, LP, 6.625%, 5/15/2018 | 4,785,020 | ||
4,000M | Simon Property Group, LP, 5.75%, 12/1/2015 | 4,527,888 | ||
4,000M | Ventas Realty, LP, 4.75%, 6/1/2021 | 4,403,812 | ||
30,991,785 | ||||
Retail-General Merchandise—1.5% | ||||
2,500M | GAP, Inc., 5.95%, 4/12/2021 | 2,789,512 | ||
4,000M | Home Depot, Inc., 5.875%, 12/16/2036 | 5,289,672 | ||
8,079,184 | ||||
Telecommunications—3.5% | ||||
3,700M | BellSouth Corp., 6.55%, 6/15/2034 | 4,486,738 | ||
1,200M | BellSouth Telecommunications, 6.375%, 6/1/2028 | 1,437,154 | ||
3,000M | Deutsche Telekom International Finance BV, 4.875%, 3/6/2042 (a) | 3,238,458 | ||
3,300M | GTE Corp., 6.84%, 4/15/2018 | 4,174,784 | ||
4,045M | Verizon New York, Inc., 7.375%, 4/1/2032 | 5,378,370 | ||
18,715,504 | ||||
Transportation—2.0% | ||||
3,000M | Con-way, Inc., 7.25%, 1/15/2018 | 3,516,513 | ||
3,100M | GATX Corp., 4.75%, 6/15/2022 | 3,282,153 | ||
4,000M | Penske Truck Leasing Co., LP, 4.875%, 7/11/2022 (a) | 4,000,648 | ||
10,799,314 |
21 |
Portfolio of Investments (continued)
INVESTMENT GRADE FUND
September 30, 2012
Principal | |||||||
Amount | Security | Value | |||||
Utilities—4.9% | |||||||
$4,000M | Arizona Public Service Co., 4.5%, 4/1/2042 | $ 4,336,496 | |||||
3,000M | E.ON International Finance BV, 5.8%, 4/30/2018 (a) | 3,636,066 | |||||
1,900M | Electricite de France SA, 6.5%, 1/26/2019 (a) | 2,327,333 | |||||
4,000M | Exelon Generation Co., LLC, 5.2%, 10/1/2019 | 4,548,264 | |||||
Great River Energy Co.: | |||||||
496M | 5.829%, 7/1/2017 (a) | 537,566 | |||||
3,652M | 4.478%, 7/1/2030 (a) | 4,075,548 | |||||
3,000M | Ohio Power Co., 5.375%, 10/1/2021 | 3,679,503 | |||||
2,561M | Sempra Energy, 9.8%, 2/15/2019 | 3,615,727 | |||||
26,756,503 | |||||||
Waste Management—.8% | |||||||
3,755M | Republic Services, Inc., 3.8%, 5/15/2018 | 4,180,562 | |||||
Total Value of Investments (cost $474,606,522) | 98.3 | % | 530,616,114 | ||||
Other Assets, Less Liabilities | 1.7 | 9,315,665 | |||||
Net Assets | 100.0 | % | $539,931,779 |
(a) | Security exempt from registration under Rule 144A of the Securities Act of 1933 (see Note 4). |
22 |
Accounting Standards Codification (“ASC”) 820 established a three-tier hierarchy of inputs to establish a classification of fair value measurements for disclosure purposes. The three-tier hierarchy of inputs is summarized in the three broad Levels listed below:
Level 1 — Unadjusted quoted prices in active markets for identical securities that the Fund has the ability to access. |
Level 2 — Observable inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. These inputs may include quoted prices for the identical instrument on an inactive market, prices for similar instruments, interest rates, prepayment speeds, credit risk, yield curves, default rates and similar data. |
Level 3 — Unobservable inputs for the asset or liability, to the extent relevant observable inputs are not available, representing the Fund’s own assumption about the assumptions a market participant would use in valuing the asset or liability, and would be based on the best information available. |
The inputs methodology used for valuing securities are not necessarily an indication of the risk associated with investing in those securities.
The following is a summary, by category of Level, of inputs used to value the Fund’s investments as of September 30, 2012:
Level 1 | Level 2 | Level 3 | Total | |||||||||
Corporate Bonds* | $ | — | $ | 530,616,114 | $ | — | $ | 530,616,114 |
* | The Portfolio of Investments provides information on the industry categorization for corporate bonds. |
There were no transfers into or from Level 1 or Level 2 by the Fund during the year ended | |
September 30, 2012. Transfers, if any, between Levels are recognized at the end of the | |
reporting period. |
See notes to financial statements | 23 |
Portfolio Manager’s Letter
INTERNATIONAL OPPORTUNITIES BOND FUND
Dear Investor:
This is the annual report for the First Investors International Opportunities Bond Fund for the fiscal year ended September 30, 2012. During the period, the Fund’s return on a net asset value basis was 2.4% for Class A shares, including dividends of 1.5 cents per share on Class A shares.
We live in extraordinary economic and financial times. The third quarter of 2012 was another example of that. For the first time since 2008-2009, all the world’s major central banks pulled in the same direction. The Federal Reserve (“the Fed”) announced open-ended quantitative easing operations. The European Central Bank (“ECB”) presented the Outright Monetary Transaction (“OMT”) program for backstopping the debt of troubled European Union countries. The Bank of Japan quickly followed with a dramatic increase in the budget of its asset acquisition program. The Bank of England continued to fund asset purchases, while the People’s Bank of China lowered reserve requirements another notch. Select emerging markets have reacted to the competitive pressures triggered by these measures with their own actions.
The softening in global growth is mostly attributable to Europe. Europe’s sovereign debt crisis infected its financial system last year by forcing banks to boost capital provisions through asset sales, a process that threatened a massive credit crunch. The ECB tried to deal with this issue late in 2011 through the Long-Term Refinancing Operation (“LTRO”) program. But this program focused on liquidity — not solvency in the banking system — and the program fell short by the end of the first quarter. In our view, the OMT program is a game changer because it promises unlimited support for the assets depressing bank capital, namely the sovereign debts of Europe’s periphery.
The initiatives taken by the ECB and Fed reduce tail risk, in our view. This view is corroborated by the decline in European swap spreads, inter-bank interest rates and commercial bank deposits held at the ECB. Similarly, the range of performance across the spectrum of risk assets has widened noticeably. We interpret this trend as a signal that investors have become more discriminating in assessing where risk is concentrated, as the threat of a systemic economic collapse recedes.
In our view, the bigger risk to the investment outlook is not that central bank initiatives will fail to produce economic traction; the bigger risk is that central bank actions are very successful. The great irony is that the sight of economic traction and the return of more sustainable growth could lead to a sea change in investor sentiment precisely at the time that this risk is picking up. Timing is everything, though, and we do not believe that a marked change in sentiment is a meaningful risk anytime soon. Across all major economic zones, however, clear signs of economic progress exist in spite of this year’s softness.
24 |
Overall, we continue to believe that the safe-haven bond markets of the world offer little value. Real yields in most of these markets are zero or negative across much of the curve. Correspondingly, we are not significantly invested in these markets. Our portfolio duration is now roughly in line with the Citigroup WGBI ex-U.S. benchmark. However, most of our duration comes from exposures outside of safe haven bond markets. We think there is significant price risk in these securities. But the absence of much private credit growth has inhibited any tendency for yields to rise in a sustainable fashion. The path of fiscal consolidation will affect the level of safe-haven yields, but the upcoming trend seems clear.
The Fund incepted late in the annual period, so meaningful attribution is difficult to calculate given the impact of cash-flow effects. Accounts invested similarly from the inception date underperformed their benchmark during the five-week period through September 30, 2012. A strengthening yen and euro likely accounted for nearly all of the underperformance, while bond positioning decisions offset this weakness. Owning higher yielding currencies benefited relative performance, but did not fully offset the relative underperformance related to avoiding the yen and euro currencies.
Thank you for placing your trust in First Investors. As always, we appreciate the opportunity to serve your investment needs.
25 |
Fund Expenses (unaudited)
INTERNATIONAL OPPORTUNITIES BOND FUND
The examples below show the ongoing costs (in dollars) of investing in your Fund and will help you in comparing these costs with costs of other mutual funds. Please refer to page 2 for a detailed explanation of the information presented in these examples.
Beginning | Ending | ||
Account | Account | Expenses Paid | |
Value | Value | During Period | |
(8/20/12) | (9/30/12) | (8/20/12–9/30/12) | |
Expense Example | |||
Actual | $1,000.00 | $1,023.50 | $1.62* |
Hypothetical | |||
(5% annual return before expenses) | $1,000.00 | $1,018.50 | $6.56** |
* | Actual expenses reflect only from the commencement of operations to the end of the period cov- |
ered (August 20, 2012 to September 30, 2012). Therefore expenses shown are lower than would | |
be expected for a six-month period. Actual expenses for the six-month period will be reflected in | |
future reports. Expenses are equal to the annualized expense ratio of 1.30% multiplied by the aver- | |
age account value over the period, multiplied by 45/366 (to reflect the inception period). Expenses | |
paid during during the period are net of expenses waived and/or assumed. | |
** | Expenses are equal to the annualized expense ratio of 1.30% multiplied by the average account |
value over the period, multiplied by 183/366 (to reflect the one-half year period). Expenses paid | |
during the period are net of expenses waived and/or assumed. |
Portfolio Composition
TOP SECTORS
Portfolio holdings and allocations are subject to change. Percentages are as of September 30, 2012, |
and are based on the total value of investments. |
26 |
Portfolio of Investments
INTERNATIONAL OPPORTUNITIES BOND FUND
September 30, 2012
Principal | ||||
Amount | † | Security | Value | |
SOVEREIGN BONDS—82.1% | ||||
United Kingdom—16.9% | ||||
United Kingdom Gilt: | ||||
885M | GBP | 4.5%, 3/7/2013 | $ 1,455,236 | |
930M | GBP | 4.25%, 3/7/2036 | 1,856,241 | |
3,311,477 | ||||
Mexico—13.7% | ||||
United Mexican States: | ||||
109M | MXN | 7%, 6/19/2014 | 884,901 | |
149M | MXN | 8.5%, 5/31/2029 | 1,455,625 | |
35M | MXN | 8.5%, 11/18/2038 | 339,602 | |
2,680,128 | ||||
Australia—10.3% | ||||
690M | AUD | New South Wales Treasury Corp., 6%, 4/1/2016 | 787,404 | |
Queensland Treasury Corp.: | ||||
535M | AUD | 6.25%, 2/21/2020 | 640,727 | |
175M | AUD | 6%, 7/21/2022 | 210,808 | |
320M | AUD | Treasury Corp. of Victoria, 5.75%, 11/15/2016 (a) | 366,754 | |
2,005,693 | ||||
Italy—9.2% | ||||
1,550M | EUR | Buoni Poliennali Del Tesoro, 5%, 8/1/2039 | 1,802,558 | |
Poland—5.7% | ||||
Republic of Poland: | ||||
680M | PLN | 5.25%, 10/25/2020 | 222,067 | |
2,665M | PLN | 5.75%, 9/23/2022 | 902,038 | |
1,124,105 | ||||
South Korea—4.3% | ||||
Republic of Korea: | ||||
170,000M | KRW | 3%, 12/10/2013 | 153,364 | |
662,000M | KRW | 5.75%, 9/10/2018 | 688,692 | |
842,056 | ||||
Malaysia—4.2% | ||||
2,455M | MYR | Federation of Malaysia, 3.741%, 2/27/2015 | 814,371 |
27 |
Portfolio of Investments (continued)
INTERNATIONAL OPPORTUNITIES BOND FUND
September 30, 2012
Principal | ||||
Amount | Security | Value | ||
New Zealand—4.0% | ||||
Dominion of New Zealand: | ||||
435M | NZD | 5%, 3/15/2019 | $ 402,376 | |
395M | NZD | 5.5%, 4/15/2023 | 386,509 | |
788,885 | ||||
Turkey—3.7% | ||||
1,275M | TRY | Republic of Turkey, 9%, 3/5/2014 | 727,466 | |
Hungary—3.7% | ||||
165,000M | HUF | Hungary Government Bond, 5.5%, 2/12/2016 | 722,400 | |
South Africa—3.7% | ||||
Republic of South Africa: | ||||
3,715M | ZAR | 6.75%, 3/31/2021 | 455,901 | |
2,645M | ZAR | 6.5%, 2/28/2041 | 263,115 | |
719,016 | ||||
Ireland—2.7% | ||||
Republic of Ireland: | ||||
50M | EUR | 4.5%, 4/18/2020 | 62,522 | |
355M | EUR | 5%, 10/18/2020 | 457,161 | |
519,683 | ||||
Total Value of Sovereign Bonds (cost $15,722,693) | 16,057,838 | |||
CORPORATE BONDS—2.7% | ||||
Germany—2.1% | ||||
Financials | ||||
350M | AUD | Kreditanstalt fuer Wiederaufbau, 6.25%, 12/4/2019 (b) | 413,993 | |
United States—.3% | ||||
Energy | ||||
50M | EUR | Chesapeake Energy Corp., 6.25%, 1/15/2017 | 66,576 |
28 |
Principal | |||||||
Amount | Security | Value | |||||
South Africa—.3% | |||||||
Consumer Discretionary | |||||||
50M | EUR | Edcon Proprietary, Ltd., 3.502%, 6/15/2014 (c) | $ 60,144 | ||||
Total Value of Corporate Bonds (cost $528,619) | 540,713 | ||||||
Total Value of Investments (cost $16,251,312) | 84.8 | % | 16,598,551 | ||||
Other Assets, Less Liabilities | 15.2 | 2,964,943 | |||||
Net Assets | 100.0 | % | $19,563,494 |
(a) | A portion or all of the security purchased on a when-issued or delayed delivery basis | |
(see Note 1G). | ||
(b) | The Federal Republic of Germany guarantees all existing and future obligations of Kreditanstalt | |
fuer Wiederaufbau (“KFW”) in respect of money borrowed, bonds issued, and derivative trans- | ||
actions entered into by KFW, as well as third party obligations that are expressly guaranteed | ||
by KFW. | ||
(c) | Security exempt from registration under Rule 144A of the Securities Act of 1933 (see Note 4). | |
Abbreviations: | ||
AUD | Australian Dollar | |
EUR | Euro | |
GBP | British Pound | |
HUF | Hungarian Forint | |
KRW | South Korean Won | |
MXN | Mexican Peso | |
MYR | Malaysian Ringgit | |
NZD | New Zealand Dollar | |
PLN | Polish Zloty | |
TRY | Turkish Lira | |
ZAR | South African Rand |
Accounting Standards Codification (“ASC”) 820 established a three-tier hierarchy of inputs to establish a classification of fair value measurements for disclosure purposes. The three-tier hierarchy of inputs is summarized in the three broad Levels listed below:
Level 1 — Unadjusted quoted prices in active markets for identical securities that the Fund has the ability to access. |
Level 2 — Observable inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. These inputs may include quoted prices for the identical instrument on an inactive market, prices for similar instruments, interest rates, prepayment speeds, credit risk, yield curves, default rates and similar data. |
29 |
Portfolio of Investments (continued)
INTERNATIONAL OPPORTUNITIES BOND FUND
September 30, 2012
Level 3 — Unobservable inputs for the asset or liability, to the extent relevant observable inputs are not available, representing the Fund’s own assumption about the assumptions a market participant would use in valuing the asset or liability, and would be based on the best information available. |
The inputs methodology used for valuing securities are not necessarily an indication of the risk associated with investing in those securities.
The following is a summary, by category of Level, of inputs used to value the Fund’s investments as of September 30, 2012:
Level 1 | Level 2 | Level 3 | Total | |||||||||
Sovereign Bonds | ||||||||||||
United Kingdom | $ | — | $ | 3,311,477 | $ | — | $ | 3,311,477 | ||||
Mexico | — | 2,680,128 | — | 2,680,128 | ||||||||
Australia | — | 2,005,693 | — | 2,005,693 | ||||||||
Italy | — | 1,802,558 | — | 1,802,558 | ||||||||
Poland | — | 1,124,105 | — | 1,124,105 | ||||||||
South Korea | — | 842,056 | — | 842,056 | ||||||||
Malaysia | — | 814,371 | — | 814,371 | ||||||||
New Zealand | — | 788,885 | — | 788,885 | ||||||||
Turkey | — | 727,466 | — | 727,466 | ||||||||
Hungary | — | 722,400 | — | 722,400 | ||||||||
South Africa | — | 719,016 | — | 719,016 | ||||||||
Ireland | — | 519,683 | — | 519,683 | ||||||||
Corporate Bonds | ||||||||||||
Germany | — | 413,993 | — | 413,993 | ||||||||
United States | — | 66,576 | — | 66,576 | ||||||||
South Africa | — | 60,144 | — | 60,144 | ||||||||
Total Investments in Securities | $ | — | $ | 16,598,551 | $ | — | $ | 16,598,551 | ||||
Other Financial Instruments* | $ | — | $ | 26,381 | $ | — | $ | 26,381 |
* | Other financial instruments are foreign exchange contracts and are considered derivative instruments, |
which are valued at the net unrealized appreciation on the instrument. | |
During the period ended September 30, 2012, there were no transfers between Level 1 investments | |
and Level 2 investments that had a material impact to the Fund. Transfers, if any, between Levels are | |
recognized at the end of the reporting period. |
30 | See notes to financial statements |
Portfolio Manager’s Letter
FUND FOR INCOME
Dear Investor:
This is the annual report for the First Investors Fund For Income for the fiscal year ended September 30, 2012. During the period, the Fund’s return on a net asset value basis was 17.8% for Class A shares and 17.0% for Class B shares, including dividends of 15.8 cents per share on Class A shares and 14.2 cents on Class B shares.
Throughout the period, the U.S. high yield market offered investors an attractive opportunity from a fundamental perspective. Companies sitting on record cash balances saw few defaults and focused on debt refinancing, cost containment and fiscal responsibility. Despite strong fundamental characteristics, U.S. high yield markets were not immune to headline news abroad, which caused negative return months over the period in November, March and May. Such pullbacks were short and swift, creating volatility that followed the news in a generally upward-bound market.
At the start of 2012, a second Greek bailout combined with the Long Term Refinancing Operation (“LTRO”) bolstered market sentiment that a full blown crisis in Greece, or a banking crisis in Europe, could be avoided. By the second quarter, however, European sovereign concerns were, once again, at the forefront. As a result, Greece experienced significant bank deposit withdrawals and investor fear spread to Spanish banks.
In June, investors began to receive some of the positive news they needed to reinvest in risk assets. Greek elections narrowly supported continued Greek membership in the Eurozone and the European Leaders Summit developed a plan to recapitalize Spanish banks. By the third quarter, many of the macro milestones investors eagerly anticipated had outcomes viewed as largely favorable to the market.
In July, European Central Bank (“ECB”) president, Mario Draghi, announced to the delight of investors that he will “do whatever it takes” to bring the Eurozone crisis under control. In September, the ECB sent markets a strong signal by offering to purchase unlimited amounts of Eurozone countries’ short-term bonds. The following week, the German constitutional court approved the Eurozone’s new bailout fund and budget pact. Finally, the Federal Reserve (“the Fed”) announced QE3.
Risky assets like high yield rallied strongly on the back of these developments throughout the year. In keeping with the risk-on sentiment, high yield outperformed investment grade corporate and high quality government securities which, in the U.S., delivered returns of 10.98%i and 5.66%ii, respectively. A strong technical bid further bolstered high yield investor demand for the asset class, which remained robust for the year, with the exception of the second quarter. Issuers took advantage of the low yields to borrow at attractive rates and, in many cases, refinanced older, more expensive outstanding bonds.
31 |
Portfolio Manager’s Letter (continued)
FUND FOR INCOME
In this environment, the Fund generated strong performance in line with its benchmark on a net basis. From an industry perspective, the Fund enjoyed its strongest performance relative to the market in the energy, auto and health care sectors. The Fund lagged the market in the home building sector, and more significantly in metals and mining — where we have tended to be overweight — and in banking, where we have tended to be underweight. Metals have been a volatile sector where we looked to acquire positions during market dips, which we believe offered strong value. As with prior years, we remained largely absent from the banking sector, where a great deal of the available paper has equity-like features we believe inappropriate in a fixed income portfolio.
In the U.S., companies are awaiting the outcome of the U.S. presidential election and clarity on next year’s tax regime and fiscal cliff negotiations. China is also in the midst of a change of leadership, an event causing Chinese companies to take pause. Lastly, continued noise out of Europe, as exemplified by recent riots in Spain, Greece and instability in the Middle East, continue to hold company managements back from taking longer-term strategic decisions. We expect to see a resolution to many of these issues — particularly in the U.S. — by the start of the new year. It is important to emphasize that regardless of the outcome of these macro events, high yield companies do not require strong growth to meet their contractual obligations.
Thank you for placing your trust in First Investors. As always, we appreciate the opportunity to serve your investment needs.
32 |
Fund Expenses (unaudited)
FUND FOR INCOME
The examples below show the ongoing costs (in dollars) of investing in your Fund and will help you in comparing these costs with costs of other mutual funds. Please refer to page 2 for a detailed explanation of the information presented in these examples.
Beginning | Ending | ||
Account | Account | Expenses Paid | |
Value | Value | During Period | |
(4/1/12) | (9/30/12) | (4/1/12–9/30/12)* | |
Expense Example – Class A Shares | |||
Actual | $1,000.00 | $1,054.54 | $6.47 |
Hypothetical | |||
(5% annual return before expenses) | $1,000.00 | $1,018.70 | $6.36 |
Expense Example – Class B Shares | |||
Actual | $1,000.00 | $1,050.86 | $10.05 |
Hypothetical | |||
(5% annual return before expenses) | $1,000.00 | $1,015.20 | $9.87 |
* | Expenses are equal to the annualized expense ratio of 1.26% for Class A shares and 1.96% for |
Class B shares, multiplied by the average account value over the period, multiplied by 183/366 | |
(to reflect the one-half year period). Expenses paid during the period are net of expenses waived. |
Portfolio Composition
BY SECTOR
Portfolio holdings and allocations are subject to change. Percentages are as of September 30, 2012, |
and are based on the total value of investments. |
33 |
Cumulative Performance Information (unaudited)
FUND FOR INCOME
Comparison of change in value of $10,000 investment in the First Investors Fund For Income (Class A shares), the Bank of America (“BofA”) Merrill Lynch BB-B U.S. Cash Pay High Yield Constrained Index.
The graph compares a $10,000 investment in the First Investors Fund For Income (Class A shares) beginning 9/30/02 with a theoretical investment in the BofA Merrill Lynch BB-B U.S. Cash Pay High Yield Constrained Index (the “Index”). The Index contains all securities in the BofA Merrill Lynch U.S. Cash Pay High Yield Index rated BB1 through B3, based on an average of Moody’s, S&P and Fitch, but caps issuer exposure at 2%. Index constituents are capitalization-weighted, based on their current amount outstanding, provided the total allocation to an individual issuer does not exceed 2%. It is not possible to invest directly in this Index. In addition, the Index does not reflect fees and expenses associated with the active management of a mutual fund portfolio. For purposes of the graph and the accompanying table it is assumed that all dividends and distributions were reinvested. Class B shares performance may be greater than or less than that shown in the line graph above for Class A shares based on differences in sales loads and fees paid by shareholders investing in the different classes.
* Average Annual Total Return figures (for the periods ended 9/30/12) include the reinvestment of all dividends and distributions. “N.A.V. Only” returns are calculated without sales charges. The Class A “S.E.C. Standardized” returns shown are based on the maximum sales charge of 5.75%. The Class B “S.E.C. Standardized” returns are adjusted for the applicable deferred sales charge (maximum of 4% in the first year). During the periods shown, some of the expenses of the Fund were waived or assumed. If such expenses had been paid by the Fund, the Class A “S.E.C. Standardized” Average Annual Total Return for One Year, Five Years and Ten Years would have been 11.13%, 3.63% and 6.96%, respectively, and the S.E.C. 30-Day Yield for September 2012 would have been 4.10%. The Class B “S.E.C. Standardized” Average Annual Total Return for One Year, Five Years and Ten Years would have been 12.98%, 3.79% and 6.98%, respectively, and the S.E.C. 30-Day Yield for September 2012 would have been 3.66%. Results represent past performance and do not indicate future results. The graph and the returns shown do not reflect the deduction of taxes that a shareholder would pay on distributions or the redemption of fund shares. Investment return and principal value of an investment will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than the original cost. The issuers of high yield bonds, in which the Fund primarily invests, pay higher interest rates because they have a greater likelihood of financial difficulty, which could result in their inability to repay the bonds fully when due. Prices of high yield bonds are also subject to greater fluctuations. Index figures are from Bank of America Merrill Lynch and all other figures are from First Investors Management Company, Inc.
34 |
Portfolio of Investments
FUND FOR INCOME
September 30, 2012
Principal | ||||
Amount | Security | Value | ||
CORPORATE BONDS—92.2% | ||||
Automotive—4.2% | ||||
$ 675M | American Axle & Manufacturing, Inc., 6.625%, 10/15/2022 | $ 686,812 | ||
Chrysler Group, LLC/CG Co-Issuer, Inc.: | ||||
1,925M | 8%, 6/15/2019 | 2,050,125 | ||
3,025M | 8.25%, 6/15/2021 | 3,236,750 | ||
3,000M | Cooper Tire & Rubber Co., 8%, 12/15/2019 | 3,420,000 | ||
2,825M | Cooper-Standard Automotive, Inc., 8.5%, 5/1/2018 | 3,072,187 | ||
3,950M | Exide Technologies, 8.625%, 2/1/2018 | 3,441,437 | ||
1,925M | Ford Motor Co., 6.625%, 10/1/2028 | 2,159,546 | ||
1,225M | Jaguar Land Rover, PLC, 7.75%, 5/15/2018 (a) | 1,327,594 | ||
2,100M | Oshkosh Corp., 8.5%, 3/1/2020 | 2,362,500 | ||
Schaeffler Finance BV: | ||||
1,725M | 7.75%, 2/15/2017 (a) | 1,914,750 | ||
1,900M | 8.5%, 2/15/2019 (a) | 2,137,500 | ||
25,809,201 | ||||
Building Materials—2.8% | ||||
2,650M | Associated Materials, LLC, 9.125%, 11/1/2017 | 2,610,250 | ||
Building Materials Corp.: | ||||
3,625M | 6.875%, 8/15/2018 (a) | 3,905,937 | ||
1,375M | 7.5%, 3/15/2020 (a) | 1,512,500 | ||
6,175M | McJunkin Red Man Corp., 9.5%, 12/15/2016 | 6,692,156 | ||
2,150M | Texas Industries, Inc., 9.25%, 8/15/2020 | 2,289,750 | ||
17,010,593 | ||||
Capital Goods—.6% | ||||
Belden, Inc.: | ||||
2,650M | 9.25%, 6/15/2019 | 3,014,375 | ||
1,000M | 5.5%, 9/1/2022 (a) | 1,027,500 | ||
4,041,875 | ||||
Chemicals—3.0% | ||||
2,950M | Ferro Corp., 7.875%, 8/15/2018 | 2,861,500 | ||
2,575M | Kinove German Bondco GmbH, 9.625%, 6/15/2018 (a) | 2,832,500 | ||
LyondellBasell Industries NV: | ||||
1,200M | 5%, 4/15/2019 | 1,281,000 | ||
1,250M | 6%, 11/15/2021 | 1,431,250 | ||
2,475M | PolyOne Corp., 7.375%, 9/15/2020 | 2,691,563 | ||
6,325M | Rhodia SA, 6.875%, 9/15/2020 (a) | 7,131,438 | ||
18,229,251 |
35 |
Portfolio of Investments (continued)
FUND FOR INCOME
September 30, 2012
Principal | ||||
Amount | Security | Value | ||
Consumer Non-Durables—2.5% | ||||
$ 2,400M | Easton-Bell Sports, Inc., 9.75%, 12/1/2016 | $ 2,601,000 | ||
Levi Strauss & Co.: | ||||
925M | 7.625%, 5/15/2020 | 1,003,625 | ||
2,625M | 6.875%, 5/1/2022 | 2,749,688 | ||
1,125M | Libbey Glass, Inc., 6.875%, 5/15/2020 (a) | 1,215,000 | ||
3,025M | Phillips Van-Heusen Corp., 7.375%, 5/15/2020 | 3,433,375 | ||
3,025M | Reynolds Group Issuer, Inc., 5.75%, 10/15/2020 (a) | 3,028,781 | ||
900M | Wolverine World Wide, Inc., 6.125%, 10/15/2020 (a)(b) | 931,500 | ||
14,962,969 | ||||
Energy—14.5% | ||||
AmeriGas Finance, LLC: | ||||
550M | 6.75%, 5/20/2020 | 588,500 | ||
1,500M | 7%, 5/20/2022 | 1,620,000 | ||
Basic Energy Services, Inc.: | ||||
450M | 7.125%, 4/15/2016 | 456,750 | ||
1,025M | 7.75%, 2/15/2019 | 1,055,750 | ||
2,475M | Berry Petroleum Co., 6.375%, 9/15/2022 | 2,617,312 | ||
2,125M | Calumet Specialty Products Partners, LP, 9.625%, 8/1/2020 (a) | 2,300,312 | ||
Chesapeake Energy Corp.: | ||||
2,650M | 7.25%, 12/15/2018 | 2,862,000 | ||
125M | 6.625%, 8/15/2020 | 129,531 | ||
1,000M | Chesapeake Midstream Partners, LP, 6.125%, 7/15/2022 | 1,062,500 | ||
Concho Resources, Inc.: | ||||
2,300M | 8.625%, 10/1/2017 | 2,547,250 | ||
1,275M | 5.5%, 4/1/2023 | 1,333,969 | ||
Consol Energy, Inc.: | ||||
1,875M | 8%, 4/1/2017 | 1,968,750 | ||
3,700M | 8.25%, 4/1/2020 | 3,894,250 | ||
Copano Energy, LLC: | ||||
500M | 7.75%, 6/1/2018 | 527,500 | ||
2,400M | 7.125%, 4/1/2021 | 2,520,000 | ||
2,900M | Crosstex Energy, LP, 8.875%, 2/15/2018 | 3,108,438 | ||
2,750M | El Paso Corp., 6.5%, 9/15/2020 | 3,101,095 | ||
750M | Encore Acquisition Co., 9.5%, 5/1/2016 | 817,500 | ||
2,976M | Expro Finance Luxembourg SCA, 8.5%, 12/15/2016 (a) | 3,080,160 | ||
Ferrellgas Partners, LP: | ||||
3,450M | 9.125%, 10/1/2017 | 3,717,375 | ||
1,363M | 8.625%, 6/15/2020 | 1,325,517 | ||
3,975M | Forest Oil Corp., 7.25%, 6/15/2019 | 3,965,062 | ||
3,375M | Genesis Energy, LP, 7.875%, 12/15/2018 | 3,594,375 |
36 |
Principal | ||||
Amount | Security | Value | ||
Energy (continued) | ||||
$ 3,875M | Hilcorp Energy I, LP, 8%, 2/15/2020 (a) | $ 4,330,312 | ||
Linn Energy, LLC: | ||||
3,175M | 6.25%, 11/1/2019 (a) | 3,163,094 | ||
600M | 8.625%, 4/15/2020 | 660,000 | ||
550M | 7.75%, 2/1/2021 | 584,375 | ||
2,100M | MEG Energy Corp., 6.375%, 1/30/2023 (a) | 2,244,375 | ||
3,100M | Murray Energy Corp., 10.25%, 10/15/2015 (a) | 3,053,500 | ||
Newfield Exploration Co.: | ||||
450M | 7.125%, 5/15/2018 | 477,000 | ||
550M | 5.75%, 1/30/2022 | 617,375 | ||
Penn Virginia Resource Partners, LP: | ||||
2,100M | 8.25%, 4/15/2018 | 2,178,750 | ||
700M | 8.375%, 6/1/2020 (a) | 726,250 | ||
1,525M | Petrohawk Energy Corp., 10.5%, 8/1/2014 | 1,659,131 | ||
Plains Exploration & Production Co.: | ||||
1,175M | 6.125%, 6/15/2019 | 1,189,688 | ||
700M | 6.625%, 5/1/2021 | 714,000 | ||
Quicksilver Resources, Inc.: | ||||
1,075M | 8.25%, 8/1/2015 | 1,029,313 | ||
1,300M | 11.75%, 1/1/2016 | 1,319,500 | ||
2,100M | 9.125%, 8/15/2019 | 2,005,500 | ||
1,125M | SandRidge Energy, Inc., 7.5%, 2/15/2023 (a) | 1,161,563 | ||
1,125M | SESI, LLC, 6.375%, 5/1/2019 | 1,209,375 | ||
SM Energy Co.: | ||||
600M | 6.625%, 2/15/2019 | 636,000 | ||
1,175M | 6.5%, 11/15/2021 | 1,251,375 | ||
1,150M | 6.5%, 1/1/2023 (a) | 1,208,938 | ||
Suburban Propane Partners, LP: | ||||
2,089M | 7.5%, 10/1/2018 (a) | 2,245,675 | ||
603M | 7.375%, 8/1/2021 (a) | 646,718 | ||
950M | Tesoro Logistics, LP, 5.875%, 10/1/2020 (a) | 976,125 | ||
2,875M | Vanguard Natural Resources, LLC, 7.875%, 4/1/2020 | 2,900,156 | ||
1,500M | Western Refining, Inc., 11.25%, 6/15/2017 (a) | 1,676,250 | ||
88,058,234 | ||||
Financials—4.7% | ||||
Ally Financial, Inc.: | ||||
1,525M | 5.5%, 2/15/2017 | 1,595,600 | ||
4,075M | 6.25%, 12/1/2017 | 4,422,740 | ||
3,425M | 8%, 3/15/2020 | 4,024,375 |
37 |
Portfolio of Investments (continued)
FUND FOR INCOME
September 30, 2012
Principal | ||||
Amount | Security | Value | ||
Financials (continued) | ||||
$ 675M | CNH Capital, LLC, 6.25%, 11/1/2016 (a) | $ 736,594 | ||
4,600M | Ford Motor Credit Co., LLC, 5.875%, 8/2/2021 | 5,213,373 | ||
International Lease Finance Corp.: | ||||
500M | 5.875%, 5/1/2013 | 513,750 | ||
275M | 6.625%, 11/15/2013 | 288,750 | ||
5,450M | 8.625%, 9/15/2015 | 6,226,625 | ||
1,900M | 8.75%, 3/15/2017 | 2,232,500 | ||
1,275M | 8.25%, 12/15/2020 | 1,520,438 | ||
1,800M | Serta Simmons Holdings, LLC, 8.125%, 10/1/2020 (a)(b) | 1,795,500 | ||
28,570,245 | ||||
Food/Beverage/Tobacco—.2% | ||||
1,250M | JBS USA, LLC, 7.25%, 6/1/2021 (a) | 1,181,250 | ||
Food/Drug—.9% | ||||
3,600M | NBTY, Inc., 9%, 10/1/2018 | 4,023,000 | ||
1,525M | Tops Holding Corp./Tops Markets, LLC, 10.125%, 10/15/2015 | 1,614,594 | ||
5,637,594 | ||||
Forest Products/Containers—2.4% | ||||
2,050M | Ardagh Packaging Finance, PLC, 7.375%, 10/15/2017 (a) | 2,207,968 | ||
2,450M | Ball Corp., 7.375%, 9/1/2019 | 2,744,000 | ||
2,375M | Clearwater Paper Corp., 7.125%, 11/1/2018 | 2,594,687 | ||
1,400M | JSG Funding, PLC (Smurfit Kappa Funding, PLC), 7.75%, 4/1/2015 | 1,417,430 | ||
525M | Mead Products, LLC/ACCO Brands, 6.75%, 4/30/2020 (a) | 549,938 | ||
825M | Sappi Papier Holdings GmbH, 8.375%, 6/15/2019 (a) | 885,844 | ||
1,750M | Sealed Air Corp., 8.125%, 9/15/2019 (a) | 1,955,625 | ||
2,150M | Tekni-Plex, Inc., 9.75%, 6/1/2019 (a) | 2,305,875 | ||
14,661,367 | ||||
Gaming/Leisure—.5% | ||||
National CineMedia, LLC: | ||||
1,550M | 7.875%, 7/15/2021 | 1,697,250 | ||
1,575M | 6%, 4/15/2022 (a) | 1,669,500 | ||
3,366,750 | ||||
Health Care—6.1% | ||||
1,800M | AMERIGROUP Corp., 7.5%, 11/15/2019 | 2,111,625 | ||
850M | Aviv Healthcare Properties, LP, 7.75%, 2/15/2019 | 905,250 | ||
1,250M | Capella Healthcare, Inc., 9.25%, 7/1/2017 | 1,339,062 |
38 |
Principal | ||||
Amount | Security | Value | ||
Health Care (continued) | ||||
Community Health Systems, Inc.: | ||||
$ 1,825M | 8%, 11/15/2019 | $ 2,012,062 | ||
1,750M | 7.125%, 7/15/2020 | 1,869,219 | ||
DaVita, Inc.: | ||||
1,425M | 6.375%, 11/1/2018 | 1,524,750 | ||
1,025M | 5.75%, 8/15/2022 | 1,071,125 | ||
Fresenius Medical Care US Finance II, Inc.: | ||||
1,150M | 5.625%, 7/31/2019 (a) | 1,227,625 | ||
925M | 5.875%, 1/31/2022 (a) | 992,063 | ||
4,400M | Genesis Health Ventures, Inc., 9.75%, 6/15/2005 (c)(d) | 2,750 | ||
HCA, Inc.: | ||||
675M | 6.375%, 1/15/2015 | 730,687 | ||
2,075M | 8%, 10/1/2018 | 2,401,813 | ||
500M | 8.5%, 4/15/2019 | 566,250 | ||
200M | 6.5%, 2/15/2020 | 223,000 | ||
475M | 7.25%, 9/15/2020 | 534,375 | ||
1,950M | 7.75%, 5/15/2021 | 2,135,250 | ||
1,525M | 7.5%, 2/15/2022 | 1,734,688 | ||
Healthsouth Corp.: | ||||
1,225M | 7.25%, 10/1/2018 | 1,332,187 | ||
1,025M | 7.75%, 9/15/2022 | 1,124,938 | ||
1,225M | LVB Acquisition, Inc. (Biomet, Inc.), 10%, 10/15/2017 | 1,293,906 | ||
1,725M | Sky Growth Acquisition Corp., 7.375%, 10/15/2020 (a) | 1,740,094 | ||
1,975M | Universal Hospital Services, Inc., 7.625%, 8/15/2020 (a) | 2,063,875 | ||
675M | Valeant Pharmaceuticals International, Inc., 6.375%, 10/15/2020 (a)(b) | 690,188 | ||
Vanguard Health Holding Co. II, LLC: | ||||
1,925M | 8%, 2/1/2018 | 2,064,563 | ||
1,325M | 7.75%, 2/1/2019 (a) | 1,416,094 | ||
3,725M | VPI Escrow Corp., 6.375%, 10/15/2020 (a)(b) | 3,818,125 | ||
36,925,564 | ||||
Information Technology—4.3% | ||||
2,500M | Advanced Micro Devices, Inc., 7.5%, 8/15/2022 (a) | 2,425,000 | ||
2,000M | Audatex North America, Inc., 6.75%, 6/15/2018 (a) | 2,145,000 | ||
3,225M | Computer Sciences Corp., 6.5%, 3/15/2018 | 3,741,603 | ||
Equinix, Inc.: | ||||
1,875M | 8.125%, 3/1/2018 | 2,090,625 | ||
1,250M | 7%, 7/15/2021 | 1,404,687 | ||
Fidelity National Information Services, Inc.: | ||||
1,350M | 7.625%, 7/15/2017 | 1,485,000 | ||
2,400M | 7.875%, 7/15/2020 | 2,694,000 |
39 |
Portfolio of Investments (continued)
FUND FOR INCOME
September 30, 2012
Principal | ||||
Amount | Security | Value | ||
Information Technology (continued) | ||||
Jabil Circuit, Inc.: | ||||
$ 350M | 7.75%, 7/15/2016 | $ 406,875 | ||
3,825M | 8.25%, 3/15/2018 | 4,561,313 | ||
2,925M | Lawson Software, Inc., 9.375%, 4/1/2019 (a) | 3,261,375 | ||
2,100M | MEMC Electronic Materials, Inc., 7.75%, 4/1/2019 | 1,732,500 | ||
25,947,978 | ||||
Manufacturing—2.2% | ||||
1,550M | Amsted Industries, 8.125%, 3/15/2018 (a) | 1,681,750 | ||
2,425M | Bombardier, Inc., 7.5%, 3/15/2018 (a) | 2,758,437 | ||
3,850M | Case New Holland, Inc., 7.875%, 12/1/2017 | 4,533,375 | ||
1,550M | EDP Finance BV, 6%, 2/2/2018 (a) | 1,554,991 | ||
2,575M | Rexel SA, 6.125%, 12/15/2019 (a) | 2,661,906 | ||
13,190,459 | ||||
Media-Broadcasting—3.6% | ||||
2,450M | Allbritton Communication Co., 8%, 5/15/2018 | 2,676,625 | ||
Belo Corp.: | ||||
725M | 7.75%, 6/1/2027 | 735,875 | ||
1,225M | 7.25%, 9/15/2027 | 1,206,625 | ||
2,825M | Block Communications, Inc., 7.25%, 2/1/2020 (a) | 3,015,687 | ||
2,475M | Nexstar/Mission Broadcasting, Inc., 8.875%, 4/15/2017 | 2,703,938 | ||
4,000M | Sinclair Television Group, Inc., 9.25%, 11/1/2017 (a) | 4,450,000 | ||
1,025M | Sirius XM Radio, Inc., 5.25%, 8/15/2022 (a) | 1,025,000 | ||
5,250M | XM Satellite Radio, Inc., 7.625%, 11/1/2018 (a) | 5,827,500 | ||
21,641,250 | ||||
Media-Cable TV—8.0% | ||||
Cablevision Systems Corp.: | ||||
2,750M | 8.625%, 9/15/2017 | 3,210,625 | ||
500M | 7.75%, 4/15/2018 | 556,250 | ||
CCO Holdings, LLC: | ||||
1,200M | 7.25%, 10/30/2017 | 1,314,000 | ||
1,700M | 7.875%, 4/30/2018 | 1,848,750 | ||
1,150M | 7%, 1/15/2019 | 1,250,625 | ||
1,175M | 7.375%, 6/1/2020 | 1,317,469 | ||
1,900M | Cequel Communications Holdings I, Inc., 8.625%, 11/15/2017 (a) | 2,037,750 |
40 |
Principal | ||||
Amount | Security | Value | ||
Media-Cable TV (continued) | ||||
Clear Channel Worldwide Holdings, Inc.: | ||||
$ 2,500M | 9.25%, 12/15/2017 Series “A” | $ 2,687,500 | ||
2,475M | 9.25%, 12/15/2017 Series “B” | 2,679,187 | ||
200M | 7.625%, 3/15/2020 Series “A” | 193,000 | ||
2,850M | 7.625%, 3/15/2020 Series “B” | 2,793,000 | ||
225M | CSC Holdings, LLC, 6.75%, 11/15/2021 (a) | 249,187 | ||
DISH DBS Corp.: | ||||
2,575M | 7.875%, 9/1/2019 | 3,006,312 | ||
700M | 5.875%, 7/15/2022 (a) | 721,000 | ||
1,800M | Echostar DBS Corp., 7.125%, 2/1/2016 | 1,998,000 | ||
3,025M | Gray Television, Inc., 7.5%, 10/1/2020 (a)(b) | 3,025,000 | ||
1,625M | Harron Communications, LP, 9.125%, 4/1/2020 (a) | 1,763,125 | ||
5,725M | Nara Cable Funding, Ltd., 8.875%, 12/1/2018 (a) | 5,252,688 | ||
3,112M | Quebecor Media, Inc., 7.75%, 3/15/2016 | 3,213,141 | ||
4,850M | UPC Germany GmbH, 8.125%, 12/1/2017 (a) | 5,238,000 | ||
3,850M | UPC Holding BV, 9.875%, 4/15/2018 (a) | 4,254,250 | ||
48,608,859 | ||||
Media-Diversified—1.4% | ||||
3,232M | Entravision Communications Corp., 8.75%, 8/1/2017 | 3,506,720 | ||
3,625M | Lamar Media Corp., 7.875%, 4/15/2018 | 4,023,750 | ||
880M | NAI Entertainment Holdings, LLC, 8.25%, 12/15/2017 (a) | 985,600 | ||
8,516,070 | ||||
Metals/Mining—8.4% | ||||
ArcelorMittal: | ||||
325M | 4.5%, 2/25/2017 | 319,091 | ||
4,631M | 10.1%, 6/1/2019 | 5,340,979 | ||
1,350M | 5.75%, 3/1/2021 | 1,288,286 | ||
1,125M | 6.5%, 2/25/2022 | 1,110,014 | ||
Arch Coal, Inc.: | ||||
2,775M | 7.25%, 10/1/2020 | 2,344,875 | ||
2,950M | 7.25%, 6/15/2021 | 2,478,000 | ||
FMG Resources (August 2006) Property, Ltd.: | ||||
1,250M | 6.375%, 2/1/2016 (a) | 1,221,875 | ||
975M | 6%, 4/1/2017 (a) | 911,625 | ||
2,275M | 6.875%, 2/1/2018 (a) | 2,124,281 | ||
1,525M | 8.25%, 11/1/2019 (a) | 1,486,875 | ||
850M | 6.875%, 4/1/2022 (a) | 780,937 | ||
1,400M | JMC Steel Group, 8.25%, 3/15/2018 (a) | 1,435,000 | ||
1,000M | Kaiser Aluminum Corp., 8.25%, 6/1/2020 | 1,085,000 | ||
2,750M | Metals USA, Inc., 11.125%, 12/1/2015 | 2,839,375 |
41 |
Portfolio of Investments (continued)
FUND FOR INCOME
September 30, 2012
Principal | ||||
Amount | Security | Value | ||
Metals/Mining (continued) | ||||
$ 2,975M | Molycorp, Inc., 10%, 6/1/2020 (a) | $ 2,960,125 | ||
Novelis, Inc.: | ||||
5,425M | 8.375%, 12/15/2017 | 5,953,938 | ||
400M | 8.75%, 12/15/2020 | 445,000 | ||
Peabody Energy Corp.: | ||||
2,375M | 6%, 11/15/2018 (a) | 2,386,875 | ||
1,700M | 6.5%, 9/15/2020 | 1,746,750 | ||
2,750M | 6.25%, 11/15/2021 (a) | 2,750,000 | ||
Steel Dynamics, Inc.: | ||||
1,200M | 6.125%, 8/15/2019 (a) | 1,254,000 | ||
675M | 6.375%, 8/15/2022 (a) | 700,313 | ||
United States Steel Corp.: | ||||
550M | 7%, 2/1/2018 | 554,125 | ||
1,275M | 7.375%, 4/1/2020 | 1,275,000 | ||
900M | 7.5%, 3/15/2022 | 893,250 | ||
Vulcan Materials Co.: | ||||
1,350M | 6.5%, 12/1/2016 | 1,488,375 | ||
3,725M | 7%, 6/15/2018 | 4,111,469 | ||
51,285,433 | ||||
Real Estate Investment Trusts—1.0% | ||||
Developers Diversified Realty Corp.: | ||||
675M | 9.625%, 3/15/2016 | 841,053 | ||
550M | 7.875%, 9/1/2020 | 710,066 | ||
Omega Healthcare Investors, Inc.: | ||||
975M | 7.5%, 2/15/2020 | 1,087,125 | ||
1,550M | 6.75%, 10/15/2022 | 1,720,500 | ||
1,400M | Taylor Morrison Communities, Inc., 7.75%, 4/15/2020 (a) | 1,498,000 | ||
5,856,744 | ||||
Retail-General Merchandise—4.8% | ||||
838M | CKE Restaurants, Inc., 11.375%, 7/15/2018 | 976,270 | ||
550M | Claire’s Stores, Inc., 9%, 3/15/2019 (a) | 573,375 | ||
1,750M | J.C. Penney Corp., Inc., 7.95%, 4/1/2017 | 1,815,625 | ||
2,125M | Landry’s, Inc., 9.375%, 5/1/2020 (a) | 2,252,500 | ||
2,050M | Limited Brands, Inc., 8.5%, 6/15/2019 | 2,480,500 | ||
900M | Michaels Stores, Inc., 7.75%, 11/1/2018 | 969,750 | ||
1,975M | Monitronics International, Inc., 9.125%, 4/1/2020 | 2,063,875 | ||
3,685M | Needle Merger Sub Corp., 8.125%, 3/15/2019 (a) | 3,777,125 | ||
3,550M | NPC International, Inc., 10.5%, 1/15/2020 | 4,100,250 |
42 |
Principal | ||||
Amount | Security | Value | ||
Retail-General Merchandise (continued) | ||||
$ 2,250M | Party City Holdings, Inc., 8.875%, 8/1/2020 (a) | $ 2,407,500 | ||
1,475M | QVC, Inc., 7.5%, 10/1/2019 (a) | 1,632,856 | ||
1,525M | Sally Holdings, LLC/Sally Capital, Inc., 6.875%, 11/15/2019 | 1,704,188 | ||
925M | Sotheby’s, 5.25%, 10/1/2022 (a) | 936,563 | ||
1,400M | Toys R Us Property Co. II, Inc., 8.5%, 12/1/2017 | 1,515,500 | ||
1,675M | YCC Holdings, LLC/Yankee Finance, Inc., 10.25%, 2/15/2016 | 1,742,000 | ||
28,947,877 | ||||
Services—3.3% | ||||
2,850M | Brickman Group Holdings, Inc., 9.125%, 11/1/2018 (a) | 2,935,500 | ||
2,050M | CoreLogic, Inc., 7.25%, 6/1/2021 | 2,229,375 | ||
1,550M | Covanta Holding Corp., 6.375%, 10/1/2022 | 1,692,874 | ||
Iron Mountain, Inc.: | ||||
1,525M | 7.75%, 10/1/2019 | 1,723,250 | ||
2,300M | 8.375%, 8/15/2021 | 2,558,750 | ||
1,450M | Live Nation Entertainment, Inc., 7%, 9/1/2020 (a) | 1,515,250 | ||
PHH Corp.: | ||||
2,850M | 9.25%, 3/1/2016 | 3,284,625 | ||
1,350M | 7.375%, 9/1/2019 | 1,451,250 | ||
2,375M | Reliance Intermediate Holdings, LP, 9.5%, 12/15/2019 (a) | 2,731,250 | ||
20,122,124 | ||||
Telecommunications—6.9% | ||||
625M | CenturyLink, Inc., 5.8%, 3/15/2022 | 681,340 | ||
Citizens Communications Co.: | ||||
5,500M | 7.125%, 3/15/2019 | 5,885,000 | ||
2,175M | 9%, 8/15/2031 | 2,332,687 | ||
100M | Frontier Communications Corp., 8.5%, 4/15/2020 | 113,500 | ||
2,525M | GCI, Inc., 8.625%, 11/15/2019 | 2,739,625 | ||
5,850M | Inmarsat Finance, PLC, 7.375%, 12/1/2017 (a) | 6,347,250 | ||
Intelsat Jackson Holdings SA: | ||||
3,850M | 8.5%, 11/1/2019 | 4,360,125 | ||
975M | 7.25%, 10/15/2020 (a) | 1,053,000 | ||
450M | 7.5%, 4/1/2021 | 489,375 | ||
800M | PAETEC Holding Corp., 9.875%, 12/1/2018 | 920,000 | ||
1,125M | Qwest Communications International, Inc., 7.125%, 4/1/2018 | 1,198,181 | ||
425M | Qwest Corp., 6.5%, 6/1/2017 | 499,606 | ||
850M | SBA Telecommunications, Inc., 5.75%, 7/15/2020 (a) | 895,688 | ||
Sprint Capital Corp.: | ||||
2,000M | 6.9%, 5/1/2019 | 2,085,000 | ||
3,625M | 6.875%, 11/15/2028 | 3,353,125 |
43 |
Portfolio of Investments (continued)
FUND FOR INCOME
September 30, 2012
Principal | ||||
Amount | Security | Value | ||
Telecommunications (continued) | ||||
$ 1,700M | Telesat Canada/Telesat, LLC, 6%, 5/15/2017 (a) | $ 1,776,500 | ||
580M | Virgin Media Finance, PLC, 9.5%, 8/15/2016 | 645,250 | ||
Wind Acquisition Finance SA: | ||||
750M | 11.75%, 7/15/2017 (a) | 710,625 | ||
2,175M | 7.25%, 2/15/2018 (a) | 2,077,125 | ||
Windstream Corp.: | ||||
1,725M | 7.875%, 11/1/2017 | 1,936,313 | ||
1,775M | 7.75%, 10/15/2020 | 1,912,563 | ||
42,011,878 | ||||
Transportation—1.2% | ||||
2,975M | CHC Helicopter SA, 9.25%, 10/15/2020 | 3,071,687 | ||
Navios Maritime Holdings: | ||||
1,825M | 8.875%, 11/1/2017 | 1,882,031 | ||
2,550M | 8.125%, 2/15/2019 | 2,314,125 | ||
7,267,843 | ||||
Utilities—3.2% | ||||
AES Corp.: | ||||
875M | 9.75%, 4/15/2016 | 1,050,000 | ||
800M | 8%, 10/15/2017 | 928,000 | ||
1,275M | 7.375%, 7/1/2021 | 1,459,875 | ||
3,475M | Atlantic Power Corp., 9%, 11/15/2018 | 3,709,562 | ||
2,600M | Calpine Construction Finance Co., LP, 8%, 6/1/2016 (a) | 2,808,000 | ||
Calpine Corp.: | ||||
375M | 7.875%, 7/31/2020 (a) | 411,562 | ||
275M | 7.5%, 2/15/2021 (a) | 298,375 | ||
1,346M | Indiantown Cogeneration Utilities, LP, 9.77%, 12/15/2020 | 1,422,149 | ||
2,750M | Intergen NV, 9%, 6/30/2017 (a) | 2,660,625 | ||
2,350M | NRG Energy, Inc., 7.625%, 5/15/2019 | 2,502,750 | ||
2,110M | NSG Holdings, LLC, 7.75%, 12/15/2025 (a) | 2,204,950 | ||
19,455,848 | ||||
Waste Management—.3% | ||||
2,050M | ADS Waste Holdings, Inc., 8.25%, 10/1/2020 (a)(b) | 2,096,125 |
44 |
Principal | ||||
Amount | Security | Value | ||
Wireless Communications—1.2% | ||||
$ 2,100M | MetroPCS Wireless, Inc., 7.875%, 9/1/2018 | $ 2,278,500 | ||
1,175M | Nextel Communications, Inc., 5.95%, 3/15/2014 | 1,180,875 | ||
Sprint Nextel Corp.: | ||||
950M | 6%, 12/1/2016 | 983,250 | ||
1,175M | 9.125%, 3/1/2017 | 1,336,563 | ||
975M | 7%, 8/15/2020 | 1,017,656 | ||
575M | ViaSat, Inc., 6.875%, 6/15/2020 | 595,125 | ||
7,391,969 | ||||
Total Value of Corporate Bonds (cost $536,384,272) | 560,795,350 | |||
LOAN PARTICIPATIONS—4.4% | ||||
Chemicals—.9% | ||||
2,687M | PL Propylene, LLC, 7%, 3/23/2017 (e) | 2,730,156 | ||
2,686M | PolyOne Corp., 5%, 12/20/2017 (e) | 2,707,286 | ||
5,437,442 | ||||
Consumer Discretionary—.2% | ||||
Burger King Corp.: | ||||
350M | 3.75%, 9/27/2019 (b)(e) | 351,137 | ||
900M | 4%, 9/27/2019 (b)(e) | 902,925 | ||
1,254,062 | ||||
Energy—.8% | ||||
2,875M | Chesapeake Energy Corp., 8.5%, 12/2/2017 (e) | 2,887,420 | ||
1,925M | Samson Investment Co., 6%, 9/25/2018 (e) | 1,939,842 | ||
4,827,262 | ||||
Forest Products/Containers—.5% | ||||
2,686M | Sealed Air Corp., 4.75%, 10/3/2018 (e) | 2,707,624 | ||
Information Technology—.2% | ||||
1,350M | Genpact, Ltd., 4.25%, 8/17/2019 (e) | 1,356,750 | ||
Metals/Mining—.5% | ||||
2,868M | Arch Coal, Inc., 5.75%, 5/16/2018 (e) | 2,892,906 | ||
Retail-General Merchandise—.9% | ||||
2,693M | Academy, Ltd., 6%, 8/3/2018 (e) | 2,707,652 | ||
2,700M | General Nutrition Centers, Inc., 4.25%, 3/2/2018 (e) | 2,705,265 | ||
5,412,917 |
45 |
Portfolio of Investments (continued)
FUND FOR INCOME
September 30, 2012
Principal | |||||||
Amount | |||||||
or Shares | Security | Value | |||||
Telecommunications—.4% | |||||||
$ 2,700M | Intelsat Jackson Holdings, Ltd., 3.221%, 2/1/2014 (e) | $ 2,691,009 | |||||
Total Value of Loan Participations (cost $26,270,034) | 26,579,972 | ||||||
COMMON STOCKS—.0% | |||||||
Automotive—.0% | |||||||
2,523 | * | Safelite Realty Corporation (c) | 25 | ||||
Telecommunications—.0% | |||||||
8 | * | Viatel Holding (Bermuda), Ltd. (c) | — | ||||
18,224 | * | World Access, Inc. (c) | — | ||||
— | |||||||
Total Value of Common Stocks (cost $385,770) | 25 | ||||||
Total Value of Investments (cost $563,040,076) | 96.6 | % | 587,375,347 | ||||
Other Assets, Less Liabilities | 3.4 | 20,653,455 | |||||
Net Assets | 100.0 | % | $608,028,802 |
* | Non-income producing |
(a) | Security exempt from registration under Rule 144A of the Securities Act of 1933 (see Note 4). |
(b) | A portion or all of the security purchased on a when-issued or delayed delivery basis |
(see Note 1G). | |
(c) | Securities valued at fair value (see Note 1A) |
(d) | In default as to principal and/or interest payment |
(e) | Interest rates are determined and reset periodically. The interest rates above are the rates in effect |
at September 30, 2012. |
46 |
Accounting Standards Codification (“ASC”) 820 established a three-tier hierarchy of inputs to establish a classification of fair value measurements for disclosure purposes. The three-tier hierarchy of inputs is summarized in the three broad Levels listed below:
Level 1 — Unadjusted quoted prices in active markets for identical securities that the Fund has the ability to access. |
Level 2 — Observable inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. These inputs may include quoted prices for the identical instrument on an inactive market, prices for similar instruments, interest rates, prepayment speeds, credit risk, yield curves, default rates and similar data. |
Level 3 — Unobservable inputs for the asset or liability, to the extent relevant observable inputs are not available, representing the Fund’s own assumption about the assumptions a market participant would use in valuing the asset or liability, and would be based on the best information available. |
The inputs methodology used for valuing securities are not necessarily an indication of the risk associated with investing in those securities.
The following is a summary, by category of Level, of inputs used to value the Fund’s investments as of September 30, 2012:
Level 1 | Level 2 | Level 3 | Total | |||||||||
Corporate Bonds | $ | — | $ | 560,792,600 | $ | 2,750 | $ | 560,795,350 | ||||
Loan Participations | — | 26,579,972 | — | 26,579,972 | ||||||||
Common Stocks | — | — | 25 | 25 | ||||||||
Total Investments in Securities* | $ | — | $ | 587,372,572 | $ | 2,775 | $ | 587,375,347 |
* | The Portfolio of Investments provides information on the industry categorization for the portfolio. |
There were no transfers into or from Level 1 or Level 2 by the Fund during the year ended | |
September 30, 2012. Transfers, if any, between Levels are recognized at the end of the | |
reporting period. |
47 |
Portfolio of Investments (continued)
FUND FOR INCOME
September 30, 2012
The following is a reconciliation of Fund investments valued using Level 3 inputs for the period:
Investments | Investments | |||||||||||
in | in | Investments | ||||||||||
Corporate | Common | in | ||||||||||
Bonds | Stocks | Warrants | Total | |||||||||
Balance, September 30, 2011 | $ | 2,750 | $ | 4,792 | $ | — | $ | 7,542 | ||||
Purchases | — | — | — | — | ||||||||
Sales | — | (1,532) | — | (1,532) | ||||||||
Change in unrealized | ||||||||||||
appreciation (depreciation) | — | (4,781) | — | (4,781) | ||||||||
Realized gain | — | 1,532 | — | 1,532 | ||||||||
Transfer into Level 3 | — | 14 | — | 14 | ||||||||
Transfer out of Level 3 | — | — | — | — | ||||||||
Balance, September 30, 2012 | $ | 2,750 | $ | 25 | $ | — | $ | 2,775 |
The following is a summary of Level 3 inputs by industry:
Health Care | $ | 2,750 | |
Automotive | 25 | ||
Telecommunications | — | ||
$ | 2,775 |
The following table presents additional information about valuation methodologies and inputs used for investments that are measured at fair value and categorized within Level 3 as of September 30, 2012.
Impact to | ||||||||||
Valuation | ||||||||||
Fair Value | from and | |||||||||
September 30, | Valuation | Unobservable | Increase in | |||||||
2012 | Methodologies | Input(s)(1) | Range | Input(2) | ||||||
Fixed Income | $ 2,750 | Market | Market | 100% | Increase | |||||
Comparables | Comparables/ | |||||||||
Bankruptcy | ||||||||||
Common Stock | $ 25 | Market | Market | 100% | Increase | |||||
Comparables | Comparables/ | |||||||||
Bankruptcy |
(1) | In determining certain of these inputs, management evaluates a variety of factors including |
economic conditions, industry and market developments, market valuations of comparable | |
companies and company specific developments including exit strategies and realization oppor- | |
tunities. Management has determined that market participants would take these inputs into | |
account when valuing the investments. | |
(2) | This column represents the directional change in the fair value of the Level 3 investments |
that would result from an increase to the corresponding unobservable input. A decrease to the | |
unobservable input would have the opposite effect. |
48 | See notes to financial statements |
Portfolio Composition (unaudited)
FUND FOR INCOME
The dollar weighted average of credit ratings of all bonds held by the Fund during the fiscal year ended September 30, 2012, computed on a monthly basis, are set forth below. This information reflects the average composition of the Fund’s assets during the 2012 fiscal year and is not necessarily representative of the Fund as of the end of its 2012 fiscal year, the current fiscal year or at any other time in the future.
Comparable Quality of | ||
Rated by | Unrated Securities to | |
Moody’s | Bonds Rated by Moody’s | |
A1 | 0.04% | 0.00% |
Baa1 | 0.51 | 0.00 |
Baa2 | 0.45 | 0.00 |
Baa3 | 1.49 | 0.00 |
Ba1 | 6.37 | 0.00 |
Ba2 | 12.06 | 0.00 |
Ba3 | 12.26 | 0.00 |
BB+ | 0.00 | 0.57 |
BB | 0.00 | 0.53 |
BB- | 0.00 | 0.12 |
B+ | 0.00 | 0.73 |
B | 0.00 | 1.10 |
B- | 0.00 | 0.16 |
B1 | 26.13 | 0.00 |
B2 | 18.54 | 0.00 |
B3 | 16.49 | 0.00 |
Caa1 | 4.06 | 0.00 |
Caa3 | 0.34 | 0.00 |
Caa | 1.21 | 0.00 |
49 |
Portfolio Managers’ Letter
TOTAL RETURN FUND
Dear Investor:
This is the annual report for the First Investors Total Return Fund for the fiscal year ended September 30, 2012. During the period, the Fund’s return on a net asset value basis was 21.5% for Class A shares and 20.5% for Class B shares, including dividends of 30.0 cents per share on Class A shares and 18.5 cents per share on Class B shares.
The Fund’s performance this year was driven in substantial part by its policy of allocating its assets among equities, fixed income and cash. On average, the Fund maintained allocations of 58.7% in equities, 37.4% in fixed income, and 3.9% in cash. Both the equity and fixed income portions of the Fund performed well this year, as aggressive monetary policies from the central banks created an environment that continued to make fixed income investments favorable. Uneven, but adequate economic growth helped stocks continue to rally, as businesses benefited from the increase in demand and cost cuts. Companies generated strong cash flow, but preferred to increase dividends and share repurchases to any major capital investments, until a clearer picture of the future was attained. This favored the Fund’s dividend-focused equity strategy.
Fixed Income
Long-term interest rates continued their multi-year decline during the review period, falling to all-time lows in July before rising slightly. Several factors contributed to this low interest rate environment: the very accommodative Federal Reserve (“the Fed”) monetary policy, the subpar economic recovery, and safe haven flows from overseas into the U.S. bond market. Reviewing benchmark U.S. Treasury yields, the two-year U.S. Treasury note yield, which is anchored by the Fed’s commitment to keep short-term rates very low, barely moved during the review period, ending at 0.23%. The 10-year U.S. Treasury note yield fell from 1.92% to 1.63%.
The broad U.S. bond market returned 5.4%, according to Bank of America Merrill Lynch. Riskier fixed-income sectors had very strong performance, as the Fed’s success in depressing risk-free yields forced investors to take more risk. Consequently, high yield — or “junk” bonds — returned 18.9% and investment grade corporate bonds gained close to 11%. Higher quality sectors had notably lower, although positive, returns. The broad mortgage-backed market returned 3.7%. Of note, 30-year mortgage rates fell to an all-time low. The Treasury market returned 3.2%, although Treasury securities with maturities ten years and longer, were up over 6%, due to the decline in long-term interest rates.
During the review period, the Fund had average bond and cash allocations of 37.4% and 3.9% of assets, respectively. As a percent of the Fund’s total assets, investment grade corporate bonds were the largest bond allocation at 25%, followed by mortgage-backed securities at 7.7%, U.S. government securities at 3.1%, and municipal bonds at 1.6%. The Fund’s overweight in corporate bonds and underweight in U.S. government securities benefited the Fund’s performance, as the former substantially outperformed the latter.
Equities
Equities performed well during the reporting period, aided by strong corporate earnings, a greater emphasis on dividend paying stocks, and overall positive, but uneven economic growth. The Fund’s absolute performance was attributable to positive stock selection in the industrials, consumer discretionary and technology sectors. In industrials, the Fund benefited from strong stock selection and an over-weighted allocation to the sector. Several investments were key to performance. TAL International, a leasor of intermodal freight containers, benefited from strong pricing due to the continued tight global supply of containers. Tyco International split into three separate companies this year and the stock’s performance can be attributed to the higher valuation assigned to each separate company by the marketplace. Snap-on, the professional toolmaker, continues to reap the gains of a rebounding U.S. auto sector and the expansion of their products into emerging markets. Armstrong World Industries, a domestic manufacturer of floors and ceilings, paid a large special dividend to shareholders this
50 |
year; their second such dividend in the last two years. The company took advantage of their ability to generate strong free cash flow and favorable debt markets to return excess cash to shareholders.
In consumer discretionary, the Fund’s top performers all had the common theme of returning excess cash to shareholders. Wyndham Worldwide, a hospitality company that manages hotels, rents vacation properties and sells time shares, has prospered from their ability to get higher pricing. The company generates a tremendous amount of free cash flow that they have been using to buy back stock, increase the dividend and grow the company through acquisitions. Pier 1 Imports is bearing the fruits of their successful turnaround in their merchandise and store layouts. Management has improved the products, lowered costs, increased margins and improved sales at individual store levels. This has led to an increase in cash flow, which the company has used to aggressively buy back stock and restart their dividend. The return of CBS to prominence in television ratings has led to higher returns in their stock price, which CBS has translated into new ways for the company to monetize assets. They have opened new revenue streams by reselling their content to Internet subscription services like Netflix and Amazon. The strong ratings also led to strong pricing in both syndication and for international buyers of their content. They have used their cash flow to buy back stock and raise their dividend.
In technology, Apple has been one of the best performing stocks. Their innovative products in both iPhones and tablet computers have propelled the company’s earnings. New growth opportunities have opened up overseas, as the company is truly a worldwide phenomenon. IBM, the Fund’s largest position, continues to execute on their ability to provide service and data needs to all types of companies anywhere in the world.
In health care, relative outperformance can be attributed to good stock selection and the takeover of Par Pharmaceuticals, a generic drug manufacturer. Private equity firms recognized the value we saw in the upcoming launches of Par’s new products and the positive regulatory environment. Additionally, our investment in Watson Pharmaceuticals, now the third largest generic drug manufacturer, benefited from a recent acquisition of Actavis, the Iceland-based generic pharmaceutical company, that will greatly improve the bottom line through the launch of numerous new products and cost savings programs. The Fund also had strong relative performance in LyondellBasell, the chemical and polymer maker that has seen a strong rebound in the industries that use their products, such as automotive and packaging. They have also benefited from a reduction in the price of natural gas, which is a major component in their product manufacturing. For a company that came out of bankruptcy a few years ago, it is now producing record amounts of cash and is using that cash to pay higher dividends and buy back stock.
Thank you for placing your trust in First Investors. As always, we appreciate the opportunity to serve your investment needs.
51 |
Fund Expenses (unaudited)
TOTAL RETURN FUND
The examples below show the ongoing costs (in dollars) of investing in your Fund and will help you in comparing these costs with costs of other mutual funds. Please refer to page 2 for a detailed explanation of the information presented in these examples.
Beginning | Ending | ||
Account | Account | Expenses Paid | |
Value | Value | During Period | |
(4/1/12) | (9/30/12) | (4/1/12–9/30/12)* | |
Expense Example – Class A Shares | |||
Actual | $1,000.00 | $1,023.12 | $6.73 |
Hypothetical | |||
(5% annual return before expenses) | $1,000.00 | $1,018.35 | $6.71 |
Expense Example – Class B Shares | |||
Actual | $1,000.00 | $1,019.22 | $10.25 |
Hypothetical | |||
(5% annual return before expenses) | $1,000.00 | $1,014.85 | $10.23 |
* | Expenses are equal to the annualized expense ratio of 1.33% for Class A shares and 2.03% for |
Class B shares, multiplied by the average account value over the period, multiplied by 183/366 | |
(to reflect the one-half year period). |
Portfolio Composition
TOP TEN SECTORS
Portfolio holdings and allocations are subject to change. Percentages are as of September 30, 2012, |
and are based on the total market value of investments. |
52 |
Cumulative Performance Information (unaudited)
TOTAL RETURN FUND
Comparison of change in value of $10,000 investment in the First Investors Total Return Fund (Class A shares), the Bank of America (“BofA”) Merrill Lynch U.S. Corporate, Government & Mortgage Master Index and the Standard & Poor’s 500 Index.
The graph compares a $10,000 investment in the First Investors Total Return Fund (Class A shares) beginning 9/30/02 with theoretical investments in the BofA Merrill Lynch U.S. Corporate, Government & Mortgage Master Index and the Standard & Poor’s 500 Index (the “Indices”). The BofA Merrill Lynch U.S. Corporate, Government & Mortgage Master Index tracks the performance of U.S. dollar-denominated investment grade debt publicly issued in the U.S. domestic market, including U.S. Treasury, quasi-government, corporate and residential mortgage pass-through securities. Qualifying securities must have an investment grade rating. Qualifying U.S. Treasuries must have at least one-year remaining term to final maturity, a fixed coupon schedule and a minimum amount outstanding of $1 billion. Qualifying U.S. agency, foreign government, supranational and corporate securities must have at least one-year remaining term to final maturity, a fixed coupon schedule and a minimum amount outstanding of $250 million. Qualifying residential mortgage pass-through securities include both fixed rate and hybrid securities publicly issued by U.S. agencies. 30-year, 20-year, 15-year and interest-only fixed rate mortgage pools are included in the Index provided they have at least one year remaining term to final maturity and a minimum amount outstanding of at least $5 billion per generic coupon and $250 million per production year within each generic coupon. Hybrid mortgage pools that reset versus 1-year CMT, 1 year LIBOR or 6-month LIBOR during their adjustable rate period are also included in the Index provided they have at least $2.5 billion per generic coupon and $250 million per production year within each generic coupon. The Standard & Poor’s 500 Index is an unmanaged capitalization-weighted index of 500 stocks designed to measure performance of the broad domestic economy through changes in the aggregate market value of such stocks, which represent all major industries. It is not possible to invest directly in these Indices. In addition, the Indices do not reflect fees and expenses associated with the active management of a mutual fund portfolio. For purposes of the graph and the accompanying table, unless otherwise indicated, it has been assumed that the maximum sales charge was deducted from the initial $10,000 investment in the Fund and all dividends and distributions were reinvested. Class B shares performance may be greater than or less than that shown in the line graph above for Class A shares based on differences in sales loads and fees paid by shareholders investing in the different classes.
* Average Annual Total Return figures (for the periods ended 9/30/12) include the reinvestment of all dividends and distributions. “N.A.V. Only” returns are calculated without sales charges. The Class A “S.E.C. Standardized” returns shown are based on the maximum sales charge of 5.75%. The Class B “S.E.C. Standardized” returns are adjusted for the applicable deferred sales charge (maximum of 4% in the first year). During the periods shown, some of the expenses of the Fund were waived or assumed. If such expenses had been paid by the Fund, the Class A “S.E.C. Standardized” Average Annual Total Return for Ten Years would have been 6.44%. The Class B “S.E.C. Standardized” Average Annual Total Return for Ten Years would have been 6.46%. Results represent past performance and do not indicate future results. The graph and the returns shown do not reflect the deduction of taxes that a shareholder would pay on distributions or the redemption of fund shares. Investment return and principal value of an investment will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than the original cost. BofA Merrill Lynch U.S. Corporate, Government & Mortgage Master Index figures are from Bank of America Merrill Lynch & Co. and Standard & Poor’s 500 Index figures are from Standard & Poor’s and all other figures are from First Investors Management Company, Inc.
53 |
Portfolio of Investments
TOTAL RETURN FUND
September 30, 2012
Shares | Security | Value | ||
COMMON STOCKS—58.4% | ||||
Consumer Discretionary—8.1% | ||||
89,900 | Allison Transmission Holdings, Inc. | $ 1,808,788 | ||
101,200 | Best Buy Company, Inc. | 1,739,628 | ||
45,400 | * | BorgWarner, Inc. | 3,137,594 | |
126,900 | CBS Corporation – Class “B” | 4,610,277 | ||
12,400 | CEC Entertainment, Inc. | 373,488 | ||
18,700 | Coach, Inc. | 1,047,574 | ||
155,900 | Dana Holding Corporation | 1,917,570 | ||
66,600 | * | Delphi Automotive, PLC | 2,064,600 | |
21,500 | GNC Holdings, Inc. – Class “A” | 837,855 | ||
47,500 | Home Depot, Inc. | 2,867,575 | ||
81,200 | Limited Brands, Inc. | 3,999,912 | ||
43,500 | Lowe’s Companies, Inc. | 1,315,440 | ||
27,300 | McDonald’s Corporation | 2,504,775 | ||
160,500 | Newell Rubbermaid, Inc. | 3,063,945 | ||
113,900 | Pier 1 Imports, Inc. | 2,134,486 | ||
94,900 | Staples, Inc. | 1,093,248 | ||
53,800 | * | Steiner Leisure, Ltd. | 2,504,390 | |
210,500 | Stewart Enterprises, Inc. – Class “A” | 1,767,148 | ||
27,700 | * | TRW Automotive Holdings Corporation | 1,210,767 | |
22,800 | Tupperware Brands Corporation | 1,221,852 | ||
54,260 | Wyndham Worldwide Corporation | 2,847,565 | ||
44,068,477 | ||||
Consumer Staples—5.3% | ||||
115,000 | Altria Group, Inc. | 3,839,850 | ||
85,400 | Avon Products, Inc. | 1,362,130 | ||
106,800 | Coca-Cola Company | 4,050,924 | ||
72,100 | CVS Caremark Corporation | 3,491,082 | ||
10,300 | McCormick & Company, Inc. | 639,012 | ||
51,700 | Nu Skin Enterprises, Inc. – Class “A” | 2,007,511 | ||
29,100 | PepsiCo, Inc. | 2,059,407 | ||
71,400 | Philip Morris International, Inc. | 6,421,716 | ||
23,700 | Procter & Gamble Company | 1,643,832 | ||
42,200 | Wal-Mart Stores, Inc. | 3,114,360 | ||
28,629,824 |
54 |
Shares | Security | Value | ||
Energy—5.8% | ||||
35,900 | Anadarko Petroleum Corporation | $ 2,510,128 | ||
15,200 | Chevron Corporation | 1,771,712 | ||
59,500 | ConocoPhillips | 3,402,210 | ||
6,500 | Devon Energy Corporation | 393,250 | ||
49,000 | Ensco, PLC – Class “A” | 2,673,440 | ||
57,927 | ExxonMobil Corporation | 5,297,424 | ||
8,200 | Hess Corporation | 440,504 | ||
1,897 | Hugoton Royalty Trust | 12,501 | ||
83,386 | Marathon Oil Corporation | 2,465,724 | ||
34,743 | Marathon Petroleum Corporation | 1,896,620 | ||
31,300 | National Oilwell Varco, Inc. | 2,507,443 | ||
77,900 | * | Noble Corporation | 2,787,262 | |
27,600 | Phillips 66 | 1,279,812 | ||
14,300 | Sasol, Ltd. (ADR) | 637,494 | ||
8,500 | Schlumberger, Ltd. | 614,805 | ||
86,200 | Suncor Energy, Inc. | 2,831,670 | ||
31,521,999 | ||||
Financials—6.1% | ||||
58,100 | American Express Company | 3,303,566 | ||
49,900 | Ameriprise Financial, Inc. | 2,828,831 | ||
97,400 | Brookline Bancorp, Inc. | 859,068 | ||
53,650 | Discover Financial Services | 2,131,514 | ||
23,700 | Financial Select Sector SPDR Fund (ETF) | 369,720 | ||
70,100 | FirstMerit Corporation | 1,032,573 | ||
32,900 | Invesco, Ltd. | 822,171 | ||
92,500 | JPMorgan Chase & Company | 3,744,400 | ||
31,000 | M&T Bank Corporation | 2,949,960 | ||
28,700 | MetLife, Inc. | 989,002 | ||
23,700 | Morgan Stanley | 396,738 | ||
163,300 | New York Community Bancorp, Inc. | 2,312,328 | ||
41,900 | PNC Financial Services Group, Inc. | 2,643,890 | ||
23,700 | SPDR S&P Regional Banking (ETF) | 678,768 | ||
117,672 | * | Sunstone Hotel Investors, Inc. (REIT) | 1,294,392 | |
87,800 | U.S. Bancorp | 3,011,540 | ||
100,500 | Urstadt Biddle Properties – Class “A” (REIT) | 2,033,115 | ||
52,600 | Wells Fargo & Company | 1,816,278 | ||
33,217,854 |
55 |
Portfolio of Investments (continued)
TOTAL RETURN FUND
September 30, 2012
Shares | Security | Value | ||
Health Care—7.5% | ||||
72,200 | Abbott Laboratories | $ 4,950,032 | ||
25,700 | Baxter International, Inc. | 1,548,682 | ||
30,400 | Covidien, PLC | 1,806,368 | ||
46,317 | * | Express Scripts Holding Company | 2,902,686 | |
51,200 | * | Gilead Sciences, Inc. | 3,396,096 | |
63,700 | Johnson & Johnson | 4,389,567 | ||
15,900 | McKesson Corporation | 1,367,877 | ||
76,900 | Merck & Company, Inc. | 3,468,190 | ||
32,400 | * | Par Pharmaceutical Companies, Inc. | 1,619,352 | |
205,380 | Pfizer, Inc. | 5,103,693 | ||
62,000 | Thermo Fisher Scientific, Inc. | 3,647,460 | ||
51,700 | UnitedHealth Group, Inc. | 2,864,697 | ||
45,200 | Warner Chilcott, PLC – Class “A” | 610,200 | ||
34,500 | * | Watson Pharmaceuticals, Inc. | 2,938,020 | |
40,612,920 | ||||
Industrials—10.0% | ||||
52,500 | 3M Company | 4,852,050 | ||
70,800 | Altra Holdings, Inc. | 1,288,560 | ||
45,600 | Armstrong World Industries, Inc. | 2,114,472 | ||
28,400 | Caterpillar, Inc. | 2,443,536 | ||
31,400 | Chicago Bridge & Iron Company NV – NY Shares | 1,196,026 | ||
23,400 | Dun & Bradstreet Corporation | 1,863,108 | ||
40,000 | * | Esterline Technologies Corporation | 2,245,600 | |
51,500 | Generac Holdings, Inc. | 1,178,835 | ||
91,100 | General Electric Company | 2,068,881 | ||
53,300 | Honeywell International, Inc. | 3,184,675 | ||
60,000 | IDEX Corporation | 2,506,200 | ||
90,800 | ITT Corporation | 1,829,620 | ||
10,800 | Lockheed Martin Corporation | 1,008,504 | ||
63,100 | * | Mobile Mini, Inc. | 1,054,401 | |
6,400 | Northrop Grumman Corporation | 425,152 | ||
26,800 | Parker Hannifin Corporation | 2,239,944 | ||
35,000 | * | Pentair, Inc. | 1,557,850 | |
13,100 | Raytheon Company | 748,796 | ||
32,300 | Snap-on, Inc. | 2,321,401 | ||
154,000 | TAL International Group, Inc. | 5,232,920 | ||
96,700 | Textainer Group Holdings, Ltd. | 2,954,185 |
56 |
Shares | Security | Value | ||
Industrials (continued) | ||||
25,550 | Triumph Group, Inc. | $ 1,597,642 | ||
96,275 | Tyco International, Ltd. | 5,416,432 | ||
39,300 | United Technologies Corporation | 3,076,797 | ||
54,405,587 | ||||
Information Technology—11.3% | ||||
10,700 | Apple, Inc. | 7,139,682 | ||
84,200 | * | Arris Group, Inc. | 1,076,918 | |
50,000 | Avago Technologies, Ltd. | 1,743,250 | ||
24,900 | * | CACI International, Inc. – Class “A” | 1,289,571 | |
173,600 | Cisco Systems, Inc. | 3,314,024 | ||
20,600 | * | eBay, Inc. | 997,246 | |
153,400 | * | EMC Corporation | 4,183,218 | |
65,600 | Hewlett-Packard Company | 1,119,136 | ||
134,900 | Intel Corporation | 3,059,532 | ||
38,400 | International Business Machines Corporation | 7,966,080 | ||
127,000 | Intersil Corporation – Class “A” | 1,111,250 | ||
171,600 | Microsoft Corporation | 5,110,248 | ||
108,200 | * | NCR Corporation | 2,522,142 | |
61,500 | * | NeuStar, Inc. – Class “A” | 2,461,845 | |
91,300 | Oracle Corporation | 2,875,037 | ||
41,500 | * | Parametric Technology Corporation | 904,700 | |
75,700 | QUALCOMM, Inc. | 4,730,493 | ||
94,800 | * | Symantec Corporation | 1,706,400 | |
81,800 | TE Connectivity, Ltd. | 2,782,018 | ||
151,476 | Western Union Company | 2,759,893 | ||
156,200 | * | Yahoo!, Inc. | 2,495,295 | |
61,347,978 | ||||
Materials—2.6% | ||||
42,200 | Celanese Corporation – Series “A” | 1,599,802 | ||
67,500 | Freeport-McMoRan Copper & Gold, Inc. | 2,671,650 | ||
81,900 | International Paper Company | 2,974,608 | ||
103,700 | Kronos Worldwide, Inc. | 1,549,278 | ||
44,700 | LyondellBasell Industries NV – Class “A” | 2,309,202 | ||
10,100 | Praxair, Inc. | 1,049,188 | ||
5,200 | Rock-Tenn Company – Class “A” | 375,336 | ||
46,000 | RPM International, Inc. | 1,312,840 | ||
13,841,904 |
57 |
Portfolio of Investments (continued)
TOTAL RETURN FUND
September 30, 2012
Shares or | ||||
Principal | ||||
Amount | Security | Value | ||
Telecommunication Services—1.6% | ||||
112,100 | AT&T, Inc. | $ 4,226,170 | ||
102,000 | Verizon Communications, Inc. | 4,648,140 | ||
8,874,310 | ||||
Utilities—.1% | ||||
12,000 | Atmos Energy Corporation | 429,480 | ||
Total Value of Common Stocks (cost $232,105,087) | 316,950,333 | |||
CORPORATE BONDS—26.5% | ||||
Aerospace/Defense—.4% | ||||
$1,000M | BAE Systems Holdings, Inc., 4.95%, 6/1/2014 (a) | 1,051,889 | ||
1,000M | United Technologies Corp., 6.125%, 2/1/2019 | 1,252,648 | ||
2,304,537 | ||||
Agriculture—.5% | ||||
1,000M | Cargill, Inc., 6%, 11/27/2017 (a) | 1,212,414 | ||
1,000M | CF Industries, Inc., 7.125%, 5/1/2020 | 1,257,500 | ||
2,469,914 | ||||
Automotive—.2% | ||||
1,000M | Daimler Finance NA, LLC, 2.95%, 1/11/2017 (a) | 1,053,950 | ||
Chemicals—.3% | ||||
1,500M | Dow Chemical Co., 4.25%, 11/15/2020 | 1,656,096 | ||
Consumer Durables—.4% | ||||
1,000M | Black & Decker Corp., 5.75%, 11/15/2016 | 1,164,376 | ||
1,000M | Newell Rubbermaid, Inc., 4.7%, 8/15/2020 | 1,100,488 | ||
2,264,864 | ||||
Energy—2.1% | ||||
1,000M | Canadian Oil Sands, Ltd., 7.75%, 5/15/2019 (a) | 1,261,709 | ||
1,000M | DCP Midstream, LLC, 9.75%, 3/15/2019 (a) | 1,287,033 | ||
1,000M | Enbridge Energy Partners, LP, 4.2%, 9/15/2021 | 1,083,916 | ||
1,000M | ONEOK Partners, LP, 3.375%, 10/1/2022 | 1,006,992 | ||
1,000M | Petrobras International Finance Co., 5.375%, 1/27/2021 | 1,131,771 | ||
1,000M | Reliance Holdings USA, Inc., 4.5%, 10/19/2020 (a) | 1,026,618 | ||
500M | Spectra Energy Capital, LLC, 6.2%, 4/15/2018 | 605,483 |
58 |
Principal | ||||
Amount | Security | Value | ||
Energy (continued) | ||||
$1,000M | Suncor Energy, Inc., 6.1%, 6/1/2018 | $ 1,234,851 | ||
1,000M | Valero Energy Corp., 9.375%, 3/15/2019 | 1,359,924 | ||
1,000M | Weatherford International, Inc., 6.35%, 6/15/2017 | 1,165,478 | ||
11,163,775 | ||||
Financial Services—3.3% | ||||
1,000M | Aflac, Inc., 8.5%, 5/15/2019 | 1,341,187 | ||
American Express Co.: | ||||
500M | 6.15%, 8/28/2017 | 608,878 | ||
1,000M | 7%, 3/19/2018 | 1,267,100 | ||
1,500M | American International Group, Inc., 4.875%, 9/15/2016 | 1,675,884 | ||
1,000M | Ameriprise Financial, Inc., 5.3%, 3/15/2020 | 1,180,893 | ||
1,000M | Berkshire Hathaway, Inc., 3.4%, 1/31/2022 | 1,070,810 | ||
1,000M | BlackRock, Inc., 5%, 12/10/2019 | 1,190,119 | ||
1,000M | Caterpillar Financial Services Corp., 5.85%, 9/1/2017 | 1,211,163 | ||
1,000M | CoBank, ACB, 7.875%, 4/16/2018 (a) | 1,253,213 | ||
1,000M | ERAC USA Finance Co., 6.375%, 10/15/2017 (a) | 1,195,937 | ||
1,500M | Ford Motor Credit Co., LLC, 5%, 5/15/2018 | 1,641,334 | ||
1,000M | General Electric Capital Corp., 5.625%, 9/15/2017 | 1,178,959 | ||
1,000M | Harley-Davidson Funding Corp., 5.75%, 12/15/2014 (a) | 1,090,585 | ||
1,000M | Liberty Mutual Group, Inc., 4.95%, 5/1/2022 (a) | 1,047,995 | ||
1,000M | Prudential Financial Corp., 4.75%, 9/17/2015 | 1,102,069 | ||
18,056,126 | ||||
Financials—3.5% | ||||
1,000M | Bank of America Corp., 5.65%, 5/1/2018 | 1,141,559 | ||
Barclays Bank, PLC: | ||||
1,000M | 6.75%, 5/22/2019 | 1,223,274 | ||
1,000M | 5.125%, 1/8/2020 | 1,125,771 | ||
Citigroup, Inc.: | ||||
1,000M | 6.375%, 8/12/2014 | 1,088,700 | ||
1,000M | 6.125%, 11/21/2017 | 1,177,965 | ||
1,500M | Fifth Third Bancorp, 3.5%, 3/15/2022 | 1,602,321 | ||
1,500M | Goldman Sachs Group, Inc., 6.15%, 4/1/2018 | 1,752,846 | ||
2,000M | JPMorgan Chase & Co., 6%, 1/15/2018 | 2,387,288 | ||
1,000M | Merrill Lynch & Co., Inc., 5%, 1/15/2015 | 1,074,671 | ||
1,000M | Morgan Stanley, 6.625%, 4/1/2018 | 1,150,283 | ||
1,000M | Siemens Financieringsmaatschappij NV, 5.75%, 10/17/2016 (a) | 1,180,646 | ||
1,000M | SunTrust Banks, Inc., 6%, 9/11/2017 | 1,165,845 | ||
1,000M | UBS AG, 4.875%, 8/4/2020 | 1,120,243 |
59 |
Portfolio of Investments (continued)
TOTAL RETURN FUND
September 30, 2012
Principal | ||||
Amount | Security | Value | ||
Financials (continued) | ||||
Wells Fargo & Co.: | ||||
$1,000M | 5.625%, 12/11/2017 | $ 1,202,002 | ||
500M | 4.6%, 4/1/2021 | 578,584 | ||
18,971,998 | ||||
Food/Beverage/Tobacco—2.9% | ||||
1,500M | Altria Group, Inc., 9.7%, 11/10/2018 | 2,151,109 | ||
1,000M | Anheuser-Busch InBev Worldwide, Inc., 6.875%, 11/15/2019 | 1,324,817 | ||
1,000M | Bottling Group, LLC, 5.125%, 1/15/2019 | 1,190,000 | ||
1,000M | Bunge Limited Finance Corp., 3.2%, 6/15/2017 | 1,049,562 | ||
1,000M | ConAgra Foods, Inc., 5.875%, 4/15/2014 | 1,075,347 | ||
1,000M | Corn Products International, Inc., 4.625%, 11/1/2020 | 1,122,491 | ||
1,000M | Diageo Capital, PLC, 5.75%, 10/23/2017 | 1,222,149 | ||
1,000M | Dr. Pepper Snapple Group, Inc., 6.82%, 5/1/2018 | 1,269,086 | ||
1,500M | Lorillard Tobacco Co., 6.875%, 5/1/2020 | 1,844,234 | ||
1,000M | Mead Johnson Nutrition Co., 4.9%, 11/1/2019 | 1,142,793 | ||
1,000M | Philip Morris International, Inc., 5.65%, 5/16/2018 | 1,226,641 | ||
1,000M | SABMiller Holdings, Inc., 3.75%, 1/15/2022 (a) | 1,088,080 | ||
15,706,309 | ||||
Forest Products/Containers—.2% | ||||
1,000M | International Paper Co., 9.375%, 5/15/2019 | 1,353,995 | ||
Gaming/Leisure—.2% | ||||
1,000M | Marriott International, Inc., 3.25%, 9/15/2022 | 1,007,308 | ||
Health Care—1.3% | ||||
1,000M | Aristotle Holding, Inc., 4.75%, 11/15/2021 (a) | 1,159,228 | ||
1,000M | Biogen IDEC, Inc., 6.875%, 3/1/2018 | 1,231,668 | ||
1,000M | Laboratory Corp. of America Holdings, 3.75%, 8/23/2022 | 1,048,529 | ||
1,000M | Novartis Securities Investments, Ltd., 5.125%, 2/10/2019 | 1,203,287 | ||
1,000M | Quest Diagnostics, Inc., 6.4%, 7/1/2017 | 1,190,830 | ||
1,000M | Roche Holdings, Inc., 6%, 3/1/2019 (a) | 1,257,217 | ||
7,090,759 | ||||
Household Products—.1% | ||||
500M | Clorox Co., 3.05%, 9/15/2022 | 510,900 |
60 |
Principal | ||||
Amount | Security | Value | ||
Information Technology—1.5% | ||||
$1,000M | Corning, Inc., 4.75%, 3/15/2042 | $ 1,085,123 | ||
1,500M | Dell, Inc., 5.875%, 6/15/2019 | 1,777,714 | ||
1,000M | Harris Corp., 4.4%, 12/15/2020 | 1,088,768 | ||
1,500M | Motorola Solutions, Inc., 6%, 11/15/2017 | 1,792,253 | ||
1,000M | Pitney Bowes, Inc., 5.75%, 9/15/2017 | 1,091,125 | ||
1,500M | Symantec Corp., 3.95%, 6/15/2022 | 1,521,041 | ||
8,356,024 | ||||
Manufacturing—1.1% | ||||
1,000M | Ingersoll-Rand Global Holdings Co., Ltd., 6.875%, 8/15/2018 | 1,238,116 | ||
1,000M | John Deere Capital Corp., 5.35%, 4/3/2018 | 1,198,607 | ||
1,000M | Johnson Controls, Inc., 5%, 3/30/2020 | 1,139,629 | ||
1,000M | Tyco Electronics Group SA, 6.55%, 10/1/2017 | 1,210,636 | ||
1,000M | Tyco Flow Control International, Ltd., 3.15%, 9/15/2022 (a) | 1,005,686 | ||
5,792,674 | ||||
Media-Broadcasting—1.2% | ||||
1,000M | British Sky Broadcasting Group, PLC, 9.5%, 11/15/2018 (a) | 1,385,289 | ||
1,000M | CBS Corp., 8.875%, 5/15/2019 | 1,342,168 | ||
1,500M | Comcast Corp., 5.15%, 3/1/2020 | 1,787,259 | ||
1,000M | Time Warner Cable, Inc., 6.2%, 7/1/2013 | 1,042,485 | ||
500M | Time Warner Entertainment Co., LP, 8.375%, 3/15/2023 | 705,749 | ||
6,262,950 | ||||
Media-Diversified—.4% | ||||
1,000M | McGraw-Hill Cos., Inc., 5.9%, 11/15/2017 | 1,177,765 | ||
1,000M | Vivendi SA, 6.625%, 4/4/2018 (a) | 1,166,780 | ||
2,344,545 | ||||
Metals/Mining—1.7% | ||||
1,500M | Alcoa, Inc., 6.15%, 8/15/2020 | 1,657,957 | ||
1,500M | ArcelorMittal, 6.125%, 6/1/2018 | 1,491,934 | ||
1,500M | Newmont Mining Corp., 5.125%, 10/1/2019 | 1,713,791 | ||
1,500M | Rio Tinto Finance USA, Ltd., 3.75%, 9/20/2021 | 1,600,973 | ||
1,500M | Vale Overseas, Ltd., 5.625%, 9/15/2019 | 1,695,027 | ||
1,000M | Xstrata Canada Financial Corp., 4.95%, 11/15/2021 (a) | 1,073,358 | ||
9,233,040 |
61 |
Portfolio of Investments (continued)
TOTAL RETURN FUND
September 30, 2012
Principal | ||||
Amount | Security | Value | ||
Real Estate Investment Trusts—1.4% | ||||
$1,500M | Boston Properties, LP, 5.875%, 10/15/2019 | $ 1,796,620 | ||
1,000M | Digital Realty Trust, LP, 5.25%, 3/15/2021 | 1,114,497 | ||
1,000M | HCP, Inc., 5.375%, 2/1/2021 | 1,142,769 | ||
1,000M | ProLogis, LP, 6.625%, 5/15/2018 | 1,196,255 | ||
1,000M | Simon Property Group, LP, 5.75%, 12/1/2015 | 1,131,972 | ||
1,000M | Ventas Realty, LP, 4.75%, 6/1/2021 | 1,100,953 | ||
7,483,066 | ||||
Retail-General Merchandise—.5% | ||||
1,000M | GAP, Inc., 5.95%, 4/12/2021 | 1,115,805 | ||
1,000M | Home Depot, Inc., 5.875%, 12/16/2036 | 1,322,418 | ||
2,438,223 | ||||
Telecommunications—.7% | ||||
1,000M | BellSouth Telecommunications, 6.375%, 6/1/2028 | 1,197,628 | ||
1,000M | GTE Corp., 6.84%, 4/15/2018 | 1,265,086 | ||
1,000M | Verizon Communications, Inc., 8.75%, 11/1/2018 | 1,397,909 | ||
3,860,623 | ||||
Transportation—.4% | ||||
1,000M | Con-way, Inc., 7.25%, 1/15/2018 | 1,172,171 | ||
1,000M | Penske Truck Leasing Co., LP, 4.875%, 7/11/2022 (a) | 1,000,162 | ||
2,172,333 | ||||
Utilities—2.0% | ||||
1,000M | Atmos Energy Corp., 8.5%, 3/15/2019 | 1,336,861 | ||
1,000M | Consolidated Edison Co. of New York, 7.125%, 12/1/2018 | 1,313,493 | ||
1,000M | E.ON International Finance BV, 5.8%, 4/30/2018 (a) | 1,212,022 | ||
1,000M | Electricite de France SA, 6.5%, 1/26/2019 (a) | 1,224,912 | ||
1,500M | Exelon Generation Co., LLC, 5.2%, 10/1/2019 | 1,705,599 | ||
451M | Great River Energy Co., 5.829%, 7/1/2017 (a) | 488,696 | ||
1,000M | Kinder Morgan Energy Partners, LP, 3.45%, 2/15/2023 | 1,031,773 | ||
1,000M | Ohio Power Co., 5.375%, 10/1/2021 | 1,226,501 | ||
1,000M | Sempra Energy, 9.8%, 2/15/2019 | 1,411,842 | ||
10,951,699 | ||||
Waste Management—.2% | ||||
1,000M | Republic Services, Inc., 3.8%, 5/15/2018 | 1,113,332 | ||
Total Value of Corporate Bonds (cost $130,858,289) | 143,619,040 |
62 |
Principal | ||||
Amount | Security | Value | ||
RESIDENTIAL MORTGAGE-BACKED | ||||
SECURITIES—6.4% | ||||
Fannie Mae—3.9% | ||||
$2,996M | 3.5%, 8/1/2042 – 9/1/2042 | $ 3,217,940 | ||
3,159M | 4%, 12/1/2040 – 1/1/2042 | 3,409,368 | ||
2,203M | 5%, 4/1/2040 | 2,485,339 | ||
6,129M | 5.5%, 5/1/2033 – 10/1/2039 | 6,834,467 | ||
2,951M | 6%, 5/1/2036 – 8/1/2037 | 3,283,560 | ||
1,116M | 6.5%, 11/1/2033 – 6/1/2036 | 1,273,160 | ||
709M | 7%, 3/1/2032 – 8/1/2032 | 837,730 | ||
21,341,564 | ||||
Freddie Mac—1.5% | ||||
1,717M | 4.5%, 10/1/2040 | 1,906,933 | ||
5,163M | 5.5%, 5/1/2038 – 10/1/2039 | 5,719,257 | ||
352M | 6%, 9/1/2032 – 6/1/2035 | 394,918 | ||
8,021,108 | ||||
Government National Mortgage Association II | ||||
Program—1.0% | ||||
1,000M | 3.5%, 9/20/2042 (b) | 1,095,670 | ||
4,007M | 4.5%, 7/20/2041 | 4,435,374 | ||
5,531,044 | ||||
Total Value of Residential Mortgage-Backed Securities (cost $32,803,737) | 34,893,716 | |||
U.S. GOVERNMENT AGENCY | ||||
OBLIGATIONS—1.8% | ||||
Fannie Mae: | ||||
1,500M | 2.5%, 5/15/2014 | 1,554,725 | ||
1,000M | 0.875%, 10/26/2017 | 1,006,273 | ||
Freddie Mac: | ||||
1,500M | 5.125%, 10/18/2016 | 1,775,152 | ||
1,000M | 1.25%, 5/12/2017 | 1,024,874 | ||
1,500M | 5.125%, 11/17/2017 | 1,824,366 | ||
Tennessee Valley Authority: | ||||
1,000M | 4.375%, 6/15/2015 | 1,108,551 | ||
1,000M | 4.5%, 4/1/2018 | 1,192,152 | ||
Total Value of U.S. Government Agency Obligations (cost $8,985,626) | 9,486,093 |
63 |
Portfolio of Investments (continued)
TOTAL RETURN FUND
September 30, 2012
Principal | |||||||
Amount | Security | Value | |||||
U.S. GOVERNMENT OBLIGATIONS—1.7% | |||||||
$9,000M | U.S. Treasury Note, 1.375%, 12/31/2018 (cost $8,973,534) | $ 9,270,702 | |||||
MUNICIPAL BONDS—1.1% | |||||||
1,000M | Louisiana State GO, 5%, 7/15/2024 | 1,260,000 | |||||
1,000M | Minnesota State GO, 5%, 10/1/2020 | 1,278,090 | |||||
1,000M | Mississippi State GO, 5%, 11/1/2021 | 1,273,020 | |||||
1,000M | Pennsylvania State GO, 5%, 11/15/2022 | 1,261,000 | |||||
1,000M | Port Authority of NY & NJ, 4.458%, 10/1/2062 (b) | 1,003,900 | |||||
Total Value of Municipal Bonds (cost $5,952,776) | 6,076,010 | ||||||
SHORT-TERM U.S. GOVERNMENT | |||||||
OBLIGATIONS—3.7% | |||||||
U.S. Treasury Bills: | |||||||
1,500M | 0.061%, 10/4/2012 | 1,499,992 | |||||
6,000M | 0.067%, 10/18/2012 | 5,999,810 | |||||
2,500M | 0.06%, 11/15/2012 | 2,499,813 | |||||
4,000M | 0.07%, 11/29/2012 | 3,999,541 | |||||
2,000M | 0.086%, 11/29/2012 | 1,999,718 | |||||
4,000M | 0.05%, 12/13/2012 | 3,999,594 | |||||
Total Value of Short-Term U.S. Government Obligations (cost $19,998,468) | 19,998,468 | ||||||
Total Value of Investments (cost $439,677,517) | 99.6 | % | 540,294,362 | ||||
Other Assets, Less Liabilities | .4 | 2,127,836 | |||||
Net Assets | 100.0 | % | $ 542,422,198 |
* Non-income producing | |
(a) Security exempt from registration under Rule 144A of the Securities Act of 1933 (see Note 4). | |
(b) A portion or all of the security purchased on a when-issued or delayed delivery basis | |
(see Note 1G). | |
Summary of Abbreviations: | |
ADR | American Depositary Receipts |
ETF | Exchange Traded Fund |
REIT | Real Estate Investment Trust |
64 |
Accounting Standards Codification (“ASC”) 820 established a three-tier hierarchy of inputs to establish a classification of fair value measurements for disclosure purposes. The three-tier hierarchy of inputs is summarized in the three broad Levels listed below:
Level 1 — Unadjusted quoted prices in active markets for identical securities that the Fund has the ability to access. |
Level 2 — Observable inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. These inputs may include quoted prices for the identical instrument on an inactive market, prices for similar instruments, interest rates, prepayment speeds, credit risk, yield curves, default rates and similar data. |
Level 3 — Unobservable inputs for the asset or liability, to the extent relevant observable inputs are not available, representing the Fund’s own assumption about the assumptions a market participant would use in valuing the asset or liability, and would be based on the best information available. |
The inputs methodology used for valuing securities are not necessarily an indication of the risk associated with investing in those securities.
The following is a summary, by category of Level, of inputs used to value the Fund’s investments as of September 30, 2012:
Level 1 | Level 2 | Level 3 | Total | |||||||||
Common Stocks | $ | 316,950,333 | $ | — | $ | — | $ | 316,950,333 | ||||
Corporate Bonds | — | 143,619,040 | — | 143,619,040 | ||||||||
Residential Mortgage-Backed | ||||||||||||
Securities | — | 34,893,716 | — | 34,893,716 | ||||||||
U.S. Government Agency | ||||||||||||
Obligations | — | 9,486,093 | — | 9,486,093 | ||||||||
U.S. Government Obligations | — | 9,270,702 | — | 9,270,702 | ||||||||
Municipal Bonds | — | 6,076,010 | — | 6,076,010 | ||||||||
Short-Term U.S. Government | ||||||||||||
Obligations | — | 19,998,468 | — | 19,998,468 | ||||||||
Total Investments in Securities* | $ | 316,950,333 | $ | 223,344,029 | $ | — | $ | 540,294,362 |
* | The Portfolio of Investments provides information on the industry categorization for common stocks |
and corporate bonds. | |
There were no transfers into or from Level 1 or Level 2 by the Fund during the year ended | |
September 30, 2012. Transfers, if any, between Levels are recognized at the end of the | |
reporting period. |
See notes to financial statements | 65 |
Portfolio Manager’s Letter
EQUITY INCOME FUND*
Dear Investor:
This is the annual report for the First Investors Equity Income Fund for the fiscal year ended September 30, 2012. During the period, the Fund’s return on a net asset value basis was 25.4% for Class A shares and 24.6% for Class B shares, including dividends of 9.8 cents per share on Class A shares and 4.6 cents per share on Class B shares.
The markets have had a tremendous rally over the past year. In fact, we are not far from all-time highs. Global monetary easing has helped risked-based assets move higher. The Federal Reserve’s (the Fed’s) policy of continued quantitative easing and the lowering of interest rates have forced investors to seek out higher returns and one of the beneficiaries has been the equity markets. Companies have taken advantage of these favorable interest rates by borrowing money and putting that cash to work in various forms. We have seen record numbers of dividends paid out this year. Special dividends have become a more common event. Companies have borrowed money to make acquisitions to enhance product lines or increase market positions. Share buybacks, while not a record number, are still very healthy and remain an effective use of company cash. Many of the investments in the Fund have benefited from these types of corporate actions.
The Fund’s performance was attributable to positive stock selection in the industrials, financials and consumer staples sectors. In industrials, getting smaller proved to be a winner for one of the Fund’s core holdings, Tyco International, which split into three separate companies this year and the stock’s performance can be attributed to the higher valuation assigned to each separate company in the marketplace. ADT, the security monitoring company, was spun out to shareholders. Tyco’s pump and valve business merged with Pentair. The remainder of Tyco will focus on commercial fire and security.
The Fund increased its commitment to TAL International, which leases freight shipping containers. The company has benefited from strong pricing due to the continued tight global supply of containers. TAL is one of the highest-yielding stocks in the portfolio and offers an avenue of future growth — having purchased an increasing number of containers, thus leveraging their earnings power.
In financials, the Fund benefited from Protective Life’s ability to improve their return on equity by organically growing their business and getting better pricing. They have also bought back their stock, all while paying out an attractive dividend. M&T Bank has been one of the rare banks that have been able to grow their business, while maintaining their margins. Mortgage banking has been strong, while consumers look to refinance at record low rates. M&T’s credit quality has been outstanding and recent acquisitions should drive earnings even higher.
In consumer staples, the Fund benefited from strong stock selection in large-cap, high dividend-paying stocks. Wal-Mart has been able to drive growth with their value proposition and improved store execution. Wal-Mart’s low prices resonate well with consumers looking to save in this tough economy. Kimberly-Clark, the high yielding personal care company, has been growing their business in the emerging markets. With the growth of a new middle class in the emerging-market economies, more people can afford everyday products that we may take for granted here. Kimberly-Clark has kept costs in line and has used their excess cash flow to buy back stock to support their dividend. Kraft, the iconic food company, has spun out their high growth snack business that focused on emerging markets. The remaining high-yielding consumer packaging company will be focused on the mature North American grocery market. Kraft felt that these two distinct divisions would receive higher valuation from the marketplace if they were separated.
On a relative basis, the Fund outperformed in such sectors as staples, industrials and materials. Outperformance in staples and industrials can be attributed to the stocks already mentioned. In
66 |
materials, the Fund seeks high-yielding basic material companies that can leverage earnings power and grow their free cash flow, which can be returned to shareholders in the form of stock buybacks or higher dividends. In LyondellBasell, we got both. The chemical and polymer maker has seen a strong rebound in automotive and consumer packaging. They have also benefited from a reduction in the price of natural gas liquids, a major manufacturing cost, and thus improved their margins. For a company that was in bankruptcy just a few years ago, it is now solidly in the black and using their cash to pay higher dividends and buy back stock. In Glatfelter, a small-cap manufacturer of specialty paper and air-laid fabrics essential for making tea bag paper and coffee pouches, have benefited from the rising popularity of the single-serve K-cup coffee market. The company instituted a new share buyback program and supports a good dividend.
The Fund’s underperformance relative to its benchmark comes from high dividend-paying stocks being somewhat out of favor this year. The Fund looks to invest primarily in equities that offer its shareholders high dividend income on top of absolute return. Higher yielding stocks tend to be more mature, slower growing companies that can be defensive in nature. The S&P 500 Index has more stocks that do not pay a dividend and offer much higher growth opportunities that tend to outperform in rising markets like we saw this past year.
Despite the Fund’s strong performance in financials, it did underperform on a relative basis due to our underweighting of the sector. The Fund tends to invest in high quality financial stocks with solid balance sheets and potential catalysts that may unlock value. The continued quantitative easing by the Fed has led to strong gains in lower quality financial companies that do not fit the Fund’s investment criteria. This may have hurt relative performance in the short run, but over time, we think it is prudent to remain invested in only the highest quality financial institutions.
In technology, the Fund was hurt by poor stock selection in a few companies, as well the S&P 500 Index overweighting Apple, which has the highest weighting for the Index at over 400 basis points. The Fund underperformed on a relative basis because of the outsized position the Index owned. Apple’s decision to pay a dividend now makes it a better fit for the Fund’s investment criteria. The Fund’s investment in Hewlett-Packard detracted from relative performance. Despite the low valuation and high dividend yield, Hewlett-Packard has been hurt by high employee turnover from the CEO on down. They have not been able to keep a consistent vision for the company and are now faced with deteriorating trends in computers and printing. New management has laid out plans to cut costs and release innovative new products that will hopefully right the ship.
Thank you for placing your trust in First Investors. As always, we appreciate the opportunity to serve your investment needs.
* First Investors changed the name of the Value Fund to the Equity Income Fund on September 4, 2012.
67 |
Fund Expenses (unaudited)
EQUITY INCOME FUND
The examples below show the ongoing costs (in dollars) of investing in your Fund and will help you in comparing these costs with costs of other mutual funds. Please refer to page 2 for a detailed explanation of the information presented in these examples.
Beginning | Ending | ||
Account | Account | Expenses Paid | |
Value | Value | During Period | |
(4/1/12) | (9/30/12) | (4/1/12–9/30/12)* | |
Expense Example – Class A Shares | |||
Actual | $1,000.00 | $1,017.29 | $6.71 |
Hypothetical | |||
(5% annual return before expenses) | $1,000.00 | $1,018.35 | $6.71 |
Expense Example – Class B Shares | |||
Actual | $1,000.00 | $1,014.03 | $10.22 |
Hypothetical | |||
(5% annual return before expenses) | $1,000.00 | $1,014.85 | $10.23 |
* | Expenses are equal to the annualized expense ratio of 1.33% for Class A shares and 2.03% for |
Class B shares, multiplied by the average account value over the period, multiplied by 183/366 | |
(to reflect the one-half year period). |
Portfolio Composition
TOP TEN SECTORS
Portfolio holdings and allocations are subject to change. Percentages are as of September 30, 2012, |
and are based on the total market value of investments. |
68 |
Cumulative Performance Information (unaudited)
EQUITY INCOME FUND
Comparison of change in value of $10,000 investment in the First Investors Equity Income Fund (Class A shares) and the Standard & Poor’s 500 Index.
The graph compares a $10,000 investment in the First Investors Equity Income Fund (Class A shares) beginning 9/30/02 with a theoretical investment in the Standard & Poor’s 500 Index (the “Index”). The Index is an unmanaged capitalization-weighted index of 500 stocks designed to measure performance of the broad domestic economy through changes in the aggregate market value of such stocks, which represent all major industries. It is not possible to invest directly in this Index. In addition, the Index does not reflect fees and expenses associated with the active management of a mutual fund portfolio. For purposes of the graph and the accompanying table, unless otherwise indicated, it has been assumed that the maximum sales charge was deducted from the initial $10,000 investment in the Fund and all dividends and distributions were reinvested. Class B shares performance may be greater than or less than that shown in the line graph above for Class A shares based on differences in sales loads and fees paid by shareholders investing in the different classes.
* Average Annual Total Return figures (for the periods ended 9/30/12) include the reinvestment of all dividends and distributions. “N.A.V. Only” returns are calculated without sales charges. The Class A “S.E.C. Standardized” returns shown are based on the maximum sales charge of 5.75%. The Class B “S.E.C. Standardized” returns are adjusted for the applicable deferred sales charge (maximum of 4% in the first year). Results represent past performance and do not indicate future results. The graph and the returns shown do not reflect the deduction of taxes that a shareholder would pay on distributions or the redemption of fund shares. Investment return and principal value of an investment will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than the original cost. Index figures are from Standard & Poor’s and all other figures are from First Investors Management Company, Inc.
69 |
Portfolio of Investments
EQUITY INCOME FUND
September 30, 2012
Shares | Security | Value | ||
COMMON STOCKS—94.2% | ||||
Consumer Discretionary—9.0% | ||||
103,000 | Comcast Corporation – Special Shares “A” | $ 3,584,400 | ||
72,500 | Dana Holding Corporation | 891,750 | ||
107,500 | * | Delphi Automotive, PLC | 3,332,500 | |
32,900 | Genuine Parts Company | 2,007,887 | ||
64,300 | Home Depot, Inc. | 3,881,791 | ||
104,500 | Lowe’s Companies, Inc. | 3,160,080 | ||
23,600 | McDonald’s Corporation | 2,165,300 | ||
197,500 | Newell Rubbermaid, Inc. | 3,770,275 | ||
42,900 | Omnicom Group, Inc. | 2,211,924 | ||
53,400 | Regal Entertainment Group – Class “A” | 751,338 | ||
95,000 | Staples, Inc. | 1,094,400 | ||
38,400 | Target Corporation | 2,437,248 | ||
64,633 | Time Warner, Inc. | 2,929,814 | ||
69,400 | Walt Disney Company | 3,628,232 | ||
35,846,939 | ||||
Consumer Staples—12.9% | ||||
155,000 | Altria Group, Inc. | 5,175,450 | ||
54,300 | Avon Products, Inc. | 866,085 | ||
13,800 | Beam, Inc. | 794,052 | ||
109,200 | Coca-Cola Company | 4,141,956 | ||
58,000 | ConAgra Foods, Inc. | 1,600,220 | ||
101,700 | CVS Caremark Corporation | 4,924,314 | ||
45,000 | Dr. Pepper Snapple Group, Inc. | 2,003,850 | ||
39,300 | H.J. Heinz Company | 2,198,835 | ||
70,800 | Kimberly-Clark Corporation | 6,073,224 | ||
99,200 | Kraft Foods, Inc. – Class “A” | 4,101,920 | ||
20,000 | Nu Skin Enterprises, Inc. – Class “A” | 776,600 | ||
38,413 | PepsiCo, Inc. | 2,718,488 | ||
54,800 | Philip Morris International, Inc. | 4,928,712 | ||
60,000 | * | Prestige Brands Holdings, Inc. | 1,017,600 | |
55,400 | Procter & Gamble Company | 3,842,544 | ||
146,300 | Roundy’s, Inc. | 885,115 | ||
70,900 | Wal-Mart Stores, Inc. | 5,232,420 | ||
51,281,385 |
70 |
Shares | Security | Value | ||
Energy—11.1% | ||||
76,900 | Chevron Corporation | $ 8,963,464 | ||
86,500 | ConocoPhillips | 4,946,070 | ||
44,600 | Devon Energy Corporation | 2,698,300 | ||
50,000 | Ensco, PLC – Class “A” | 2,728,000 | ||
82,400 | ExxonMobil Corporation | 7,535,480 | ||
69,600 | Marathon Oil Corporation | 2,058,072 | ||
42,200 | Marathon Petroleum Corporation | 2,303,698 | ||
13,300 | National Oilwell Varco, Inc. | 1,065,463 | ||
39,500 | Occidental Petroleum Corporation | 3,399,370 | ||
80,500 | Royal Dutch Shell, PLC – Class “A” (ADR) | 5,587,505 | ||
28,000 | Seadrill, Ltd. | 1,098,160 | ||
39,400 | Tidewater, Inc. | 1,912,082 | ||
44,295,664 | ||||
Financials—10.9% | ||||
37,600 | ACE, Ltd. | 2,842,560 | ||
21,300 | Ameriprise Financial, Inc. | 1,207,497 | ||
98,000 | Berkshire Hills Bancorp, Inc. | 2,242,240 | ||
22,856 | Chubb Corporation | 1,743,456 | ||
150,600 | FirstMerit Corporation | 2,218,338 | ||
39,600 | Invesco, Ltd. | 989,604 | ||
20,000 | iShares S&P U.S. Preferred Stock Index Fund | 797,200 | ||
157,800 | JPMorgan Chase & Company | 6,387,744 | ||
39,500 | M&T Bank Corporation | 3,758,820 | ||
33,100 | MetLife, Inc. | 1,140,626 | ||
59,700 | New York Community Bancorp, Inc. | 845,352 | ||
73,100 | People’s United Financial, Inc. | 887,434 | ||
37,900 | PNC Financial Services Group, Inc. | 2,391,490 | ||
56,500 | Protective Life Corporation | 1,480,865 | ||
102,300 | Select Income REIT (REIT) | 2,518,626 | ||
55,100 | Tompkins Financial Corporation | 2,232,652 | ||
32,800 | Travelers Companies, Inc. | 2,238,928 | ||
23,300 | U.S. Bancorp | 799,190 | ||
168,500 | Wells Fargo & Company | 5,818,305 | ||
130,500 | Westfield Financial, Inc. | 977,445 | ||
43,518,372 |
71 |
Portfolio of Investments (continued)
EQUITY INCOME FUND
September 30, 2012
Shares | Security | Value | ||
Health Care—13.1% | ||||
86,100 | Abbott Laboratories | $ 5,903,016 | ||
59,600 | Baxter International, Inc. | 3,591,496 | ||
23,500 | Becton, Dickinson & Company | 1,846,160 | ||
65,000 | Covidien, PLC | 3,862,300 | ||
62,400 | GlaxoSmithKline, PLC (ADR) | 2,885,376 | ||
113,900 | Johnson & Johnson | 7,848,849 | ||
190,211 | Merck & Company, Inc. | 8,578,516 | ||
69,000 | Novartis AG (ADR) | 4,226,940 | ||
16,150 | * | Par Pharmaceutical Companies, Inc. | 807,177 | |
351,300 | Pfizer, Inc. | 8,729,805 | ||
35,000 | UnitedHealth Group, Inc. | 1,939,350 | ||
161,500 | Warner Chilcott, PLC – Class “A” | 2,180,250 | ||
52,399,235 | ||||
Industrials—12.3% | ||||
38,600 | 3M Company | 3,567,412 | ||
10,000 | * | ADT Corporation (a) | 360,000 | |
50,700 | Dover Corporation | 3,016,143 | ||
25,000 | Dun & Bradstreet Corporation | 1,990,500 | ||
55,000 | Eaton Corporation | 2,599,300 | ||
19,800 | * | Esterline Technologies Corporation | 1,111,572 | |
43,000 | Generac Holdings, Inc. | 984,270 | ||
27,800 | General Dynamics Corporation | 1,838,136 | ||
293,600 | General Electric Company | 6,667,656 | ||
71,900 | Honeywell International, Inc. | 4,296,025 | ||
140,450 | ITT Corporation | 2,830,068 | ||
41,800 | * | Mobile Mini, Inc. | 698,478 | |
83,700 | TAL International Group, Inc. | 2,844,126 | ||
62,000 | Textainer Group Holdings, Ltd. | 1,894,100 | ||
56,500 | Triumph Group, Inc. | 3,532,945 | ||
89,075 | Tyco International, Ltd. | 5,011,359 | ||
24,200 | United Parcel Service, Inc. – Class “B” | 1,731,994 | ||
40,000 | United Technologies Corporation | 3,131,600 | ||
44,100 | Xylem, Inc. | 1,109,115 | ||
49,214,799 | ||||
Information Technology—9.3% | ||||
39,100 | Automatic Data Processing, Inc. | 2,293,606 | ||
224,400 | Cisco Systems, Inc. | 4,283,796 | ||
65,000 | Hewlett-Packard Company | 1,108,900 | ||
224,700 | Intel Corporation | 5,096,196 |
72 |
Shares | Security | Value | ||
Information Technology (continued) | ||||
228,700 | Intersil Corporation – Class “A” | $ 2,001,125 | ||
48,700 | Maxim Integrated Products, Inc. | 1,296,394 | ||
270,000 | Microsoft Corporation | 8,040,600 | ||
64,800 | Molex, Inc. | 1,702,944 | ||
50,000 | Oracle Corporation | 1,574,500 | ||
52,800 | QUALCOMM, Inc. | 3,299,472 | ||
94,200 | TE Connectivity, Ltd. | 3,203,742 | ||
36,400 | Texas Instruments, Inc. | 1,002,820 | ||
127,900 | Western Union Company | 2,330,338 | ||
37,234,433 | ||||
Materials—5.4% | ||||
87,800 | Bemis Company, Inc. | 2,763,066 | ||
15,100 | Compass Minerals International, Inc. | 1,126,309 | ||
81,900 | Dow Chemical Company | 2,371,824 | ||
62,600 | DuPont (E.I.) de Nemours & Company | 3,146,902 | ||
55,000 | Freeport-McMoRan Copper & Gold, Inc. | 2,176,900 | ||
119,000 | Glatfelter | 2,119,390 | ||
87,500 | International Paper Company | 3,178,000 | ||
31,700 | LyondellBasell Industries NV – Class “A” | 1,637,622 | ||
15,500 | Rock-Tenn Company – Class “A” | 1,118,790 | ||
59,100 | Sonoco Products Company | 1,831,509 | ||
21,470,312 | ||||
Telecommunication Services—5.5% | ||||
238,230 | AT&T, Inc. | 8,981,271 | ||
148,745 | CenturyLink, Inc. | 6,009,298 | ||
150,500 | Verizon Communications, Inc. | 6,858,285 | ||
21,848,854 | ||||
Utilities—4.7% | ||||
89,500 | American Electric Power Company, Inc. | 3,932,630 | ||
50,100 | NextEra Energy, Inc. | 3,523,533 | ||
120,900 | NiSource, Inc. | 3,080,532 | ||
112,600 | Portland General Electric Company | 3,044,704 | ||
75,000 | PPL Corporation | 2,178,750 | ||
106,400 | Vectren Corporation | 3,043,040 | ||
18,803,189 | ||||
Total Value of Common Stocks (cost $306,336,229) | 375,913,182 |
73 |
Portfolio of Investments (continued)
EQUITY INCOME FUND
September 30, 2012
Principal | |||||||
Amount | Security | Value | |||||
SHORT-TERM U.S. GOVERNMENT | |||||||
OBLIGATIONS—5.8% | |||||||
U.S. Treasury Bills: | |||||||
$3,000M | 0.08%, 10/4/2012 | $ 2,999,980 | |||||
5,000M | 0.075%, 10/11/2012 | 4,999,896 | |||||
9,000M | 0.067%, 10/18/2012 | 8,999,715 | |||||
1,000M | 0.085%, 10/18/2012 | 999,960 | |||||
3,000M | 0.07%, 11/29/2012 | 2,999,656 | |||||
2,000M | 0.086%, 11/29/2012 | 1,999,718 | |||||
Total Value of Short-Term U.S. Government Obligations (cost $22,998,925) | 22,998,925 | ||||||
Total Value of Investments (cost $329,335,154) | 100.0 | % | 398,912,107 | ||||
Other Assets, Less Liabilities | .0 | 28,654 | |||||
Net Assets | 100.0 | % | $ 398,940,761 |
* | Non-income producing |
(a) | A portion or all of the security purchased on a when-issued or delayed delivery basis |
(see Note 1G). | |
Summary of Abbreviations: | |
ADR American Depositary Receipts | |
REIT Real Estate Investment Trust |
74 |
Accounting Standards Codification (“ASC”) 820 established a three-tier hierarchy of inputs to establish a classification of fair value measurements for disclosure purposes. The three-tier hierarchy of inputs is summarized in the three broad Levels listed below:
Level 1 — Unadjusted quoted prices in active markets for identical securities that the Fund has the ability to access. |
Level 2 — Observable inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. These inputs may include quoted prices for the identical instrument on an inactive market, prices for similar instruments, interest rates, prepayment speeds, credit risk, yield curves, default rates and similar data. |
Level 3 — Unobservable inputs for the asset or liability, to the extent relevant observable inputs are not available, representing the Fund’s own assumption about the assumptions a market participant would use in valuing the asset or liability, and would be based on the best information available. |
The inputs methodology used for valuing securities are not necessarily an indication of the risk associated with investing in those securities.
The following is a summary, by category of Level, of inputs used to value the Fund’s investments as of September 30, 2012:
Level 1 | Level 2 | Level 3 | Total | |||||||||
Common Stocks | $ | 375,913,182 | $ | — | $ | — | $ | 375,913,182 | ||||
Short-Term U.S. Government | ||||||||||||
Obligations | — | 22,998,925 | — | 22,998,925 | ||||||||
Total Investments in Securities* | $ | 375,913,182 | $ | 22,998,925 | $ | — | $ | 398,912,107 |
* | The Portfolio of Investments provides information on the industry categorization for the portfolio. |
There were no transfers into or from Level 1 or Level 2 by the Fund during the year ended | |
September 30, 2012. Transfers, if any, between Levels are recognized at the end of the | |
reporting period. |
See notes to financial statements | 75 |
Portfolio Manager’s Letter
GROWTH & INCOME FUND
Dear Investor:
This is the annual report for the First Investors Growth & Income Fund for the fiscal year ended September 30, 2012. During the period, the Fund’s return on a net asset value basis was 31.6% for Class A shares and 30.7% for Class B shares, including dividends of 14.4 cents per share on Class A shares and 5.0 cents per share on Class B shares.
The Fund had a good year both in terms of absolute performance and relative performance to the S&P 500 Index. Overall, equities performed well during the reporting period, aided by strong corporate earnings, a greater emphasis on dividend-paying stocks, and overall positive, but uneven, economic growth. Businesses benefited from the increase in demand, and cost cuts. Companies generated strong cash flow, but preferred to increase dividends and share repurchases to any major capital investments, until a clearer picture of the future was attained. This favored the Fund’s dividend-focused equity strategy.
The Fund’s performance was attributable to positive stock selection in the industrials, consumer discretionary and technology sectors. In industrials, the Fund benefited from strong stock selection and an overweighted allocation to the sector. Several investments were key to performance. TAL International, a leasor of intermodal freight containers, benefited from strong pricing due to the continued tight global supply of containers. Tyco International split into three separate companies this year and the stock’s performance can be attributed to the higher valuation assigned to each separate company by the marketplace. Snap-on, the professional toolmaker, continues to reap the gains of a rebounding U.S. auto sector and the expansion of their products into emerging markets. Armstrong World Industries, a domestic manufacturer of floors and ceilings, paid a large special dividend to shareholders this year; their second such dividend in the last two years. The company took advantage of their ability to generate strong free cash flow and favorable debt markets to return excess cash to shareholders.
In consumer discretionary, the Fund’s top performers all had the common theme of returning excess cash to shareholders. Wyndham Worldwide, a hospitality company that manages hotels, rents vacation properties and sells timeshares has prospered from their ability to get higher pricing. The company generates a tremendous amount of free cash flow that they have been using to buy back stock, increase the dividend and grow the company through acquisitions. Pier 1 Imports is bearing the fruits of their successful turnaround in their merchandise and store layouts. Management has improved the products, lowered costs, increased margins and improved sales at individual store levels. This has led to an increase in cash flow, which the company has used to aggressively buy back stock and restart their dividend. The return of CBS to prominence in television ratings has led to higher returns in their stock price, which CBS has translated into new ways for the company to monetize assets. They have opened new revenue streams by reselling their content to Internet subscription services like Netflix and Amazon. The strong ratings also led to strong pricing in both syndication and for international buyers of their content. They have used their cash flow to buy back stock and raise their dividend.
In technology, Apple has been one of the best performing stocks. Their innovative products in both iPhones and tablet computers have propelled the company’s earnings. New growth opportunities have opened up overseas, as the company is truly a worldwide phenomenon. IBM, the Fund’s largest position, continues to execute on their ability to provide service and data needs to all types of companies anywhere in the world.
76 |
In health care, relative outperformance can be attributed to good stock selection and the takeover of Par Pharmaceuticals, a generic drug manufacturer. Private equity firms recognized the value we saw in the upcoming launches of Par’s new products and the positive regulatory environment. Additionally, our investment in Watson Pharmaceuticals, now the third largest generic drug manufacturer, benefited from a recent acquisition of Actavis, the Iceland-based generic pharmaceutical company, that will greatly improve the bottom line through the launch of numerous new products and cost savings programs. The Fund also had strong relative performance in LyondellBasell, the chemical and polymer maker that has seen a strong rebound in the industries that use their products, such as automotive and packaging. They have also benefited from a reduction in the price of natural gas, which is a major component in their product manufacturing. For a company that came out of bankruptcy a few years ago, it is now producing record amounts of cash and is using that cash to pay higher dividends and buy back stock.
On a relative basis the Fund performed well, beating its benchmark. It did underperform the S&P 500 Index in two sectors, financials and technology. In technology, the Fund was hurt by its relative underweighting in Apple; this despite being the largest position in the portfolio. The Fund’s underweight allocation to financials also detracted from relative performance, which tends to invest in high quality financial stocks with solid balance sheets and apparent catalysts. The continued quantitative easing by the Federal Reserve has led to strong gains in lower quality financial companies that do not fit the Fund’s investment criteria. The quantitative easing has lowered bond yields and this, in turn, has also lowered the profit margin for banks. With seemingly no end to quantitative easing, and increased cost from more regulation as the result of the upcoming Dodd Frank rules, banking profits will be harder to come by in the future.
The Fund maintained a diverse market capitalization allocation, ending the fiscal year with 69% large cap, 13% mid cap and 18% small cap, according to Lipper’s market capitalization ranges. This is consistent with the Fund’s long-term strategy. The Fund benefited from solid, broad-based strength across all size categories. Mid- and small-cap stocks performed exceptionally well and helped contribute to overall outperformance this past year.
Thank you for placing your trust in First Investors. As always, we appreciate the opportunity to serve your investment needs.
77 |
Fund Expenses (unaudited)
GROWTH & INCOME FUND
The examples below show the ongoing costs (in dollars) of investing in your Fund and will help you in comparing these costs with costs of other mutual funds. Please refer to page 2 for a detailed explanation of the information presented in these examples.
Beginning | Ending | ||
Account | Account | Expenses Paid | |
Value | Value | During Period | |
(4/1/12) | (9/30/12) | (4/1/12–9/30/12)* | |
Expense Example – Class A Shares | |||
Actual | $1,000.00 | $1,016.39 | $6.45 |
Hypothetical | |||
(5% annual return before expenses) | $1,000.00 | $1,018.60 | $6.46 |
Expense Example – Class B Shares | |||
Actual | $1,000.00 | $1,012.30 | $9.96 |
Hypothetical | |||
(5% annual return before expenses) | $1,000.00 | $1,015.10 | $9.97 |
* | Expenses are equal to the annualized expense ratio of 1.28% for Class A shares and 1.98% for |
Class B shares, multiplied by the average account value over the period, multiplied by 183/366 | |
(to reflect the one-half year period). |
Portfolio Composition
BY SECTOR
Portfolio holdings and allocations are subject to change. Percentages are as of September 30, 2012, |
and are based on the total market value of investments. |
78 |
Cumulative Performance Information (unaudited)
GROWTH & INCOME FUND
Comparison of change in value of $10,000 investment in the First Investors Growth & Income Fund (Class A shares) and the Standard & Poor’s 500 Index.
The graph compares a $10,000 investment in the First Investors Growth & Income Fund (Class A shares) beginning 9/30/02 with a theoretical investment in the Standard & Poor’s 500 Index (the “Index”). The Index is an unmanaged capitalization-weighted index of 500 stocks designed to measure performance of the broad domestic economy through changes in the aggregate market value of such stocks, which represent all major industries. It is not possible to invest directly in this Index. In addition, the Index does not reflect fees and expenses associated with the active management of a mutual fund portfolio. For purposes of the graph and the accompanying table, unless otherwise indicated, it has been assumed that the maximum sales charge was deducted from the initial $10,000 investment in the Fund and all dividends and distributions were reinvested. Class B shares performance may be greater than or less than that shown in the line graph above for Class A shares based on differences in sales loads and fees paid by shareholders investing in the different classes.
* Average Annual Total Return figures (for the periods ended 9/30/12) include the reinvestment of all dividends and distributions. “N.A.V. Only” returns are calculated without sales charges. The Class A “S.E.C. Standardized” returns shown are based on the maximum sales charge of 5.75%. The Class B “S.E.C. Standardized” returns are adjusted for the applicable deferred sales charge (maximum of 4% in the first year). Results represent past performance and do not indicate future results. The graph and the returns shown do not reflect the deduction of taxes that a shareholder would pay on distributions or the redemption of fund shares. Investment return and principal value of an investment will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than the original cost. Index figures are from Standard & Poor’s and all other figures are from First Investors Management Company, Inc.
79 |
Portfolio of Investments
GROWTH & INCOME FUND
September 30, 2012
Shares | Security | Value | ||
COMMON STOCKS—99.6% | ||||
Consumer Discretionary—13.7% | ||||
350,000 | Allison Transmission Holdings, Inc. | $ 7,042,000 | ||
385,000 | Best Buy Company, Inc. | 6,618,150 | ||
145,000 | * | BorgWarner, Inc. | 10,020,950 | |
497,000 | CBS Corporation – Class “B” | 18,056,010 | ||
51,500 | CEC Entertainment, Inc. | 1,551,180 | ||
70,000 | Coach, Inc. | 3,921,400 | ||
600,000 | Dana Holding Corporation | 7,380,000 | ||
260,000 | * | Delphi Automotive, PLC | 8,060,000 | |
85,000 | GNC Holdings, Inc. – Class “A” | 3,312,450 | ||
200,000 | Home Depot, Inc. | 12,074,000 | ||
315,000 | Limited Brands, Inc. | 15,516,900 | ||
171,100 | Lowe’s Companies, Inc. | 5,174,064 | ||
114,100 | McDonald’s Corporation | 10,468,675 | ||
525,000 | Newell Rubbermaid, Inc. | 10,022,250 | ||
400,000 | Pier 1 Imports, Inc. | 7,496,000 | ||
355,000 | Staples, Inc. | 4,089,600 | ||
150,000 | * | Steiner Leisure, Ltd. | 6,982,500 | |
631,800 | Stewart Enterprises, Inc. – Class “A” | 5,303,961 | ||
110,000 | * | TRW Automotive Holdings Corporation | 4,808,100 | |
64,700 | Tupperware Brands Corporation | 3,467,273 | ||
160,000 | Walt Disney Company | 8,364,800 | ||
230,000 | Wyndham Worldwide Corporation | 12,070,400 | ||
171,800,663 | ||||
Consumer Staples—9.3% | ||||
420,000 | Altria Group, Inc. | 14,023,800 | ||
337,800 | Avon Products, Inc. | 5,387,910 | ||
432,600 | Coca-Cola Company | 16,408,518 | ||
285,000 | CVS Caremark Corporation | 13,799,700 | ||
45,000 | McCormick & Company, Inc. | 2,791,800 | ||
200,000 | Nu Skin Enterprises, Inc. – Class “A” | 7,766,000 | ||
126,000 | PepsiCo, Inc. | 8,917,020 | ||
275,000 | Philip Morris International, Inc. | 24,733,500 | ||
135,562 | Procter & Gamble Company | 9,402,580 | ||
175,000 | Wal-Mart Stores, Inc. | 12,915,000 | ||
116,145,828 |
80 |
Shares | Security | Value | ||
Energy—10.8% | ||||
138,000 | Anadarko Petroleum Corporation | $ 9,648,960 | ||
144,800 | Chevron Corporation | 16,877,888 | ||
230,000 | ConocoPhillips | 13,151,400 | ||
51,500 | Devon Energy Corporation | 3,115,750 | ||
145,000 | Ensco, PLC – Class “A” | 7,911,200 | ||
240,490 | ExxonMobil Corporation | 21,992,810 | ||
31,700 | Hess Corporation | 1,702,924 | ||
6,920 | Hugoton Royalty Trust | 45,603 | ||
348,019 | Marathon Oil Corporation | 10,290,922 | ||
142,510 | Marathon Petroleum Corporation | 7,779,593 | ||
132,500 | National Oilwell Varco, Inc. | 10,614,575 | ||
307,500 | * | Noble Corporation | 11,002,350 | |
115,000 | Phillips 66 | 5,332,550 | ||
60,000 | Sasol, Ltd. (ADR) | 2,674,800 | ||
48,300 | Schlumberger, Ltd. | 3,493,539 | ||
302,900 | Suncor Energy, Inc. | 9,950,265 | ||
135,585,129 | ||||
Financials—10.1% | ||||
230,000 | American Express Company | 13,077,800 | ||
195,000 | Ameriprise Financial, Inc. | 11,054,550 | ||
335,000 | Brookline Bancorp, Inc. | 2,954,700 | ||
170,000 | Discover Financial Services | 6,754,100 | ||
100,000 | Financial Select Sector SPDR Fund (ETF) | 1,560,000 | ||
290,000 | FirstMerit Corporation | 4,271,700 | ||
130,000 | Invesco, Ltd. | 3,248,700 | ||
396,730 | JPMorgan Chase & Company | 16,059,630 | ||
125,000 | M&T Bank Corporation | 11,895,000 | ||
120,000 | MetLife, Inc. | 4,135,200 | ||
100,000 | Morgan Stanley | 1,674,000 | ||
450,000 | New York Community Bancorp, Inc. | 6,372,000 | ||
165,000 | PNC Financial Services Group, Inc. | 10,411,500 | ||
100,000 | SPDR S&P Regional Banking (ETF) | 2,864,000 | ||
357,666 | * | Sunstone Hotel Investors, Inc. (REIT) | 3,934,326 | |
355,000 | U.S. Bancorp | 12,176,500 | ||
273,800 | Urstadt Biddle Properties – Class “A” (REIT) | 5,538,974 | ||
237,050 | Wells Fargo & Company | 8,185,337 | ||
126,168,017 |
81 |
Portfolio of Investments (continued)
GROWTH & INCOME FUND
September 30, 2012
Shares | Security | Value | ||
Health Care—12.9% | ||||
291,600 | Abbott Laboratories | $ 19,992,096 | ||
100,000 | Baxter International, Inc. | 6,026,000 | ||
117,500 | Covidien, PLC | 6,981,850 | ||
180,000 | * | Express Scripts Holding Company | 11,280,600 | |
200,900 | * | Gilead Sciences, Inc. | 13,325,697 | |
270,625 | Johnson & Johnson | 18,648,769 | ||
60,000 | McKesson Corporation | 5,161,800 | ||
303,300 | Merck & Company, Inc. | 13,678,830 | ||
125,000 | * | Par Pharmaceutical Companies, Inc. | 6,247,500 | |
853,453 | Pfizer, Inc. | 21,208,307 | ||
244,800 | Thermo Fisher Scientific, Inc. | 14,401,584 | ||
200,000 | UnitedHealth Group, Inc. | 11,082,000 | ||
175,000 | Warner Chilcott, PLC – Class “A” | 2,362,500 | ||
135,000 | * | Watson Pharmaceuticals, Inc. | 11,496,600 | |
161,894,133 | ||||
Industrials—16.4% | ||||
200,000 | 3M Company | 18,484,000 | ||
280,000 | Altra Holdings, Inc. | 5,096,000 | ||
175,000 | Armstrong World Industries, Inc. | 8,114,750 | ||
107,000 | Caterpillar, Inc. | 9,206,280 | ||
120,000 | Chicago Bridge & Iron Company NV – NY Shares | 4,570,800 | ||
90,000 | Dun & Bradstreet Corporation | 7,165,800 | ||
140,000 | * | Esterline Technologies Corporation | 7,859,600 | |
200,000 | Generac Holdings, Inc. | 4,578,000 | ||
385,000 | General Electric Company | 8,743,350 | ||
209,700 | Honeywell International, Inc. | 12,529,575 | ||
179,475 | IDEX Corporation | 7,496,671 | ||
350,000 | ITT Corporation | 7,052,500 | ||
45,000 | Lockheed Martin Corporation | 4,202,100 | ||
168,210 | * | Mobile Mini, Inc. | 2,810,789 | |
30,000 | Northrop Grumman Corporation | 1,992,900 | ||
105,000 | Parker Hannifin Corporation | 8,775,900 | ||
135,000 | * | Pentair, Inc. | 6,008,850 | |
72,500 | Raytheon Company | 4,144,100 | ||
100,000 | Snap-on, Inc. | 7,187,000 | ||
525,000 | TAL International Group, Inc. | 17,839,500 | ||
370,000 | Textainer Group Holdings, Ltd. | 11,303,500 | ||
100,000 | Triumph Group, Inc. | 6,253,000 |
82 |
Shares | Security | Value | ||
Industrials (continued) | ||||
372,475 | Tyco International, Ltd. | $ 20,955,444 | ||
154,700 | United Technologies Corporation | 12,111,463 | ||
68,300 | Xylem, Inc. | 1,717,745 | ||
206,199,617 | ||||
Information Technology—19.7% | ||||
41,500 | Apple, Inc. | 27,691,290 | ||
325,000 | * | Arris Group, Inc. | 4,156,750 | |
180,000 | Avago Technologies, Ltd. | 6,275,700 | ||
95,000 | * | CACI International, Inc. – Class “A” | 4,920,050 | |
675,000 | Cisco Systems, Inc. | 12,885,750 | ||
100,000 | * | eBay, Inc. | 4,841,000 | |
600,000 | * | EMC Corporation | 16,362,000 | |
321,300 | Hewlett-Packard Company | 5,481,378 | ||
583,775 | Intel Corporation | 13,240,017 | ||
151,425 | International Business Machines Corporation | 31,413,116 | ||
500,000 | Intersil Corporation – Class “A” | 4,375,000 | ||
876,345 | Microsoft Corporation | 26,097,554 | ||
422,000 | * | NCR Corporation | 9,836,820 | |
240,000 | * | NeuStar, Inc. – Class “A” | 9,607,200 | |
350,000 | Oracle Corporation | 11,021,500 | ||
160,000 | * | Parametric Technology Corporation | 3,488,000 | |
297,970 | QUALCOMM, Inc. | 18,620,145 | ||
380,200 | * | Symantec Corporation | 6,843,600 | |
275,000 | TE Connectivity, Ltd. | 9,352,750 | ||
560,000 | Western Union Company | 10,203,200 | ||
605,000 | * | Yahoo!, Inc. | 9,664,875 | |
246,377,695 | ||||
Materials—3.8% | ||||
156,900 | Celanese Corporation – Series “A” | 5,948,079 | ||
250,000 | Freeport-McMoRan Copper & Gold, Inc. | 9,895,000 | ||
315,000 | International Paper Company | 11,440,800 | ||
275,000 | Kronos Worldwide, Inc. | 4,108,500 | ||
130,000 | LyondellBasell Industries NV – Class “A” | 6,715,800 | ||
40,000 | Praxair, Inc. | 4,155,200 | ||
19,500 | Rock-Tenn Company – Class “A” | 1,407,510 | ||
135,000 | RPM International, Inc. | 3,852,900 | ||
47,523,789 |
83 |
Portfolio of Investments (continued)
GROWTH & INCOME FUND
September 30, 2012
Shares | Security | Value | |||||
Telecommunication Services—2.8% | |||||||
435,300 | AT&T, Inc. | $ 16,410,810 | |||||
396,400 | Verizon Communications, Inc. | 18,063,948 | |||||
34,474,758 | |||||||
Utilities—.1% | |||||||
50,000 | Atmos Energy Corporation | 1,789,500 | |||||
Total Value of Common Stocks (cost $944,054,832) | 99.6 | % | 1,247,959,129 | ||||
Other Assets, Less Liabilities | .4 | 5,030,972 | |||||
Net Assets | 100.0 | % | $ 1,252,990,101 |
* | Non-income producing |
Summary of Abbreviations: | |
ADR American Depositary Receipts | |
ETF Exchange Traded Fund | |
REIT Real Estate Investment Trust |
84 |
Accounting Standards Codification (“ASC”) 820 established a three-tier hierarchy of inputs to establish a classification of fair value measurements for disclosure purposes. The three-tier hierarchy of inputs is summarized in the three broad Levels listed below:
Level 1 — Unadjusted quoted prices in active markets for identical securities that the Fund has the ability to access. |
Level 2 — Observable inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. These inputs may include quoted prices for the identical instrument on an inactive market, prices for similar instruments, interest rates, prepayment speeds, credit risk, yield curves, default rates and similar data. |
Level 3 — Unobservable inputs for the asset or liability, to the extent relevant observable inputs are not available, representing the Fund’s own assumption about the assumptions a market participant would use in valuing the asset or liability, and would be based on the best information available. |
The inputs methodology used for valuing securities are not necessarily an indication of the risk associated with investing in those securities.
The following is a summary, by category of Level, of inputs used to value the Fund’s investments as of September 30, 2012:
Level 1 | Level 2 | Level 3 | Total | |||||||||
Common Stocks* | $ | 1,247,959,129 | $ | — | $ | — | $ | 1,247,959,129 |
* | The Portfolio of Investments provides information on the industry categorization for the portfolio. |
There were no transfers into or from Level 1 or Level 2 by the Fund during the year ended | |
September 30, 2012. Transfers, if any, between Levels are recognized at the end of the | |
reporting period. |
See notes to financial statements | 85 |
Portfolio Managers’ Letter
GLOBAL FUND
Dear Investor:
This is the annual report for the First Investors Global Fund for the fiscal year ended September 30, 2012. During the period, the Fund’s return on a net asset value basis was 22.9% for Class A shares and 22.0% for Class B shares, including dividends of 1.6 cents per share on Class A shares and 0.7 cents on Class B shares.
Global equities rose during the period, as markets looked past lingering uncertainty regarding Eurozone sovereign debt, focusing instead on improved economic data and strong corporate earnings news. The Greek debt-restructuring deal added to investors’ optimism, helping to offset heightened geopolitical risks, a sharp rise in oil prices and fears of a slowdown in China.
Within the MSCI All Country World Index, all ten sectors posted positive returns. Health care (+26.8%), information technology (+26.4%) and consumer discretionary (+24.5%) led the Index, while the utilities (+6.1%) and materials (+11.1%) sectors posted more modest gains. On a regional basis, North America (+28.6%) and Asia ex Japan (+25.1%) outperformed, with positive returns broad based across the regions, while Japan lagged (–1.6%).
The Fund’s relative outperformance was primarily due to strong security selection in the information technology, industrials and financials sectors, which more than offset weaker stock selection in health care. Sector allocation, a result of our bottom-up stock selection process, detracted modestly from relative returns, primarily due to small cash allocation in a strong performing market. On a regional basis, strong security selection within the U.S., Europe ex UK and Japan, more than offset weaker selection within the UK and Asia ex Japan. Underweight exposure to weaker performing Japan and Emerging Markets also contributed to positive relative returns.
Top contributors to relative performance during the period included Flowserve Corporation, a provider of flow control products and services for the global infrastructure markets; WESCO International, a multinational electronics distribution and services company; and Continental AG, a German automotive industry supplier. Information technology positions in Apple and Google were among the top contributors to absolute returns during the period.
The largest detractors from relative performance during the period included LIXIL Group, a Japanese building products company; ITT Educational Services, a provider of postsecondary degree programs in the U.S. and Joy Global, a mining equipment manufacturer. Tempur-Pedic International was among the largest detractors from absolute returns.
86 |
At the end of the period, individual stock selection resulted in overweights relative to the benchmark in the industrials, information technology and health care sectors. The materials, financials and telecommunication services sectors were the Fund’s largest underweights. The Fund utilized currency forwards for defensive purposes during the period. The currency forwards had a slight negative impact on relative returns.
Thank you for placing your trust in the First Investors Global Fund. As always, we appreciate the opportunity to serve your investment needs.
87 |
Fund Expenses (unaudited)
GLOBAL FUND
The examples below show the ongoing costs (in dollars) of investing in your Fund and will help you in comparing these costs with costs of other mutual funds. Please refer to page 2 for a detailed explanation of the information presented in these examples.
Beginning | Ending | ||
Account | Account | Expenses Paid | |
Value | Value | During Period | |
(4/1/12) | (9/30/12) | (4/1/12–9/30/12)* | |
Expense Example – Class A Shares | |||
Actual | $1,000.00 | $994.14 | $8.43 |
Hypothetical | |||
(5% annual return before expenses) | $1,000.00 | $1,016.55 | $8.52 |
Expense Example – Class B Shares | |||
Actual | $1,000.00 | $989.87 | $11.89 |
Hypothetical | |||
(5% annual return before expenses) | $1,000.00 | $1,013.05 | $12.03 |
* | Expenses are equal to the annualized expense ratio of 1.69% for Class A shares and 2.39% for |
Class B shares, multiplied by the average account value over the period, multiplied by 183/366 | |
(to reflect the one-half year period). Expenses paid during the period are net of expenses waived. |
Portfolio Composition
TOP TEN SECTORS
Portfolio holdings and allocations are subject to change. Percentages are as of September 30, 2012, |
and are based on the total market value of investments. |
88 |
Cumulative Performance Information (unaudited)
GLOBAL FUND
Comparison of change in value of $10,000 investment in the First Investors Global Fund (Class A shares) and the Morgan Stanley Capital International (“MSCI”) All Country World Index.
The graph compares a $10,000 investment in the First Investors Global Fund (Class A shares) beginning 9/30/02 with a theoretical investment in the MSCI All Country World Index (the “Index”). The Index is a free float-adjusted market capitalization weighted index designed to measure the equity market performance of developed and emerging market country indices. The Index consists of 45 country indices including 24 developed and 21 emerging market country indices. It is not possible to invest directly in this Index. In addition, the Index does not reflect fees and expenses associated with the active management of a mutual fund portfolio. For purposes of the graph and the accompanying table, unless otherwise indicated, it has been assumed that the maximum sales charge was deducted from the initial $10,000 investment in the Fund and all dividends and distributions were reinvested. Class B shares performance may be greater than or less than that shown in the line graph above for Class A shares based on differences in sales loads and fees paid by shareholders investing in the different classes.
* Average Annual Total Return figures (for the periods ended 9/30/12) include the reinvestment of all dividends and distributions. “N.A.V. Only” returns are calculated without sales charges. The Class A “S.E.C. Standardized” returns shown are based on the maximum sales charge of 5.75%. The Class B “S.E.C. Standardized” returns are adjusted for the applicable deferred sales charge (maximum of 4% in the first year). During the periods shown, some of the expenses of the Fund were waived or assumed. If such expenses had been paid by the Fund, the Class A “S.E.C. Standardized” Average Annual Total Return for One Year, Five Years and Ten Years would have been 15.76%, (3.44%) and 6.91%, respectively. The Class B “S.E.C. Standardized” Average Annual Total Return for One Year, Five Years and Ten Years would have been 17.97%, (3.31%) and 6.88%, respectively. Results represent past performance and do not indicate future results. The graph and the returns shown do not reflect the deduction of taxes that a shareholder would pay on distributions or the redemption of fund shares. Investment return and principal value of an investment will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than the original cost. Index figures are from Morgan Stanley & Co., Inc. and all other figures are from First Investors Management Company, Inc.
89 |
Portfolio of Investments
GLOBAL FUND
September 30, 2012
Shares | Security | Value | ||
COMMON STOCKS—97.6% | ||||
United States—48.8% | ||||
7,500 | Accenture, PLC – Class “A” | $ 525,225 | ||
85,665 | Aflac, Inc. | 4,101,640 | ||
27,300 | Altria Group, Inc. | 911,547 | ||
14,715 | Ameriprise Financial, Inc. | 834,193 | ||
38,330 | Amgen, Inc. | 3,231,986 | ||
27,010 | Anadarko Petroleum Corporation | 1,888,539 | ||
21,960 | Analog Devices, Inc. | 860,612 | ||
11,770 | Apple, Inc. | 7,853,650 | ||
14,300 | * | Arrow Electronics, Inc. | 482,053 | |
55,000 | Assured Guaranty, Ltd. | 749,100 | ||
93,680 | AT&T, Inc. | 3,531,736 | ||
17,600 | * | Bed Bath & Beyond, Inc. | 1,108,800 | |
8,935 | BlackRock, Inc. | 1,593,110 | ||
10,050 | Boeing Company | 699,681 | ||
9,600 | * | Cameron International Corporation | 538,272 | |
25,715 | Cardinal Health, Inc. | 1,002,114 | ||
31,200 | Carnival Corporation | 1,136,928 | ||
43,845 | CBS Corporation – Class “B” | 1,592,889 | ||
26,700 | * | Check Point Software Technologies, Ltd. | 1,285,872 | |
9,985 | Chevron Corporation | 1,163,852 | ||
22,925 | Cigna Corporation | 1,081,372 | ||
159,980 | Cisco Systems, Inc. | 3,054,018 | ||
71,100 | Citigroup, Inc. | 2,326,392 | ||
27,135 | Comcast Corporation – Class “A” | 970,619 | ||
37,300 | CVS Caremark Corporation | 1,806,066 | ||
88,400 | D.R. Horton, Inc. | 1,824,576 | ||
7,900 | Deere & Company | 651,671 | ||
35,915 | Discover Financial Services | 1,426,903 | ||
22,850 | * | Dollar General Corporation | 1,177,689 | |
41,455 | Eaton Corporation | 1,959,163 | ||
41,820 | * | eBay, Inc. | 2,024,506 | |
56,490 | Eli Lilly & Company | 2,678,191 | ||
119,425 | * | EMC Corporation | 3,256,720 | |
15,300 | Ensco, PLC – Class “A” | 834,768 | ||
24,357 | Essilor International SA | 2,283,410 | ||
8,600 | * | Express Scripts Holding Company | 538,962 | |
18,000 | * | Express, Inc. | 266,760 | |
66,325 | ExxonMobil Corporation | 6,065,421 | ||
12,280 | Flowserve Corporation | 1,568,647 | ||
127,100 | General Electric Company | 2,886,441 | ||
2,100 | Global Payments, Inc. | 87,843 |
90 |
Portfolio of Investments (continued)
GLOBAL FUND
September 30, 2012
Shares | Security | Value | ||
United States (continued) | ||||
5,310 | * | Google, Inc. – Class “A” | $ 4,006,395 | |
33,400 | * | Green Mountain Coffee Roasters, Inc. | 793,250 | |
15,000 | Herbalife, Ltd. | 711,000 | ||
6,300 | Home Depot, Inc. | 380,331 | ||
13,120 | Honeywell International, Inc. | 783,920 | ||
11,570 | IAC/InterActiveCorp | 602,334 | ||
4,300 | International Business Machines Corporation | 892,035 | ||
21,104 | * | ITT Educational Services, Inc. | 680,182 | |
7,565 | Johnson & Johnson | 521,304 | ||
33,570 | Joy Global, Inc. | 1,881,934 | ||
104,885 | JPMorgan Chase & Company | 4,245,745 | ||
31,475 | * | Juniper Networks, Inc. | 538,537 | |
39,400 | Las Vegas Sands Corp. | 1,826,978 | ||
84,250 | Lowe’s Companies, Inc. | 2,547,720 | ||
9,000 | Manpower, Inc. | 331,200 | ||
23,720 | Mattel, Inc. | 841,586 | ||
1,300 | McDonald’s Corporation | 119,275 | ||
92,315 | Merck & Company, Inc. | 4,163,407 | ||
142,440 | Microsoft Corporation | 4,241,863 | ||
5,200 | National Oilwell Varco, Inc. | 416,572 | ||
4,700 | * | NetApp, Inc. | 154,536 | |
18,820 | NextEra Energy, Inc. | 1,323,611 | ||
76,915 | * | Noble Corporation | 2,752,019 | |
10,050 | Nordstrom, Inc. | 554,559 | ||
83,400 | Oracle Corporation | 2,626,266 | ||
38,840 | PepsiCo, Inc. | 2,748,707 | ||
32,620 | Philip Morris International, Inc. | 2,933,843 | ||
4,375 | PNC Financial Services Group, Inc. | 276,063 | ||
32,555 | Procter & Gamble Company | 2,258,015 | ||
36,390 | QUALCOMM, Inc. | 2,274,011 | ||
7,000 | Ross Stores, Inc. | 452,200 | ||
48,280 | St. Jude Medical, Inc. | 2,034,036 | ||
24,640 | Starbucks Corporation | 1,250,480 | ||
10,540 | Starwood Hotels & Resorts Worldwide, Inc. | 610,898 | ||
18,555 | United Parcel Service, Inc. – Class “B” | 1,327,981 | ||
25,500 | UnitedHealth Group, Inc. | 1,412,955 | ||
28,100 | Waddell & Reed Financial, Inc. – Class “A” | 920,837 | ||
37,360 | Walgreen Company | 1,361,398 | ||
22,200 | Wal-Mart Stores, Inc. | 1,638,360 | ||
8,500 | Walt Disney Company | 444,380 | ||
69,925 | Wells Fargo & Company | 2,414,510 |
91 |
Portfolio of Investments (continued)
GLOBAL FUND
September 30, 2012
Shares | Security | Value | ||
United States (continued) | ||||
22,350 | * | WESCO International, Inc. | $ 1,278,420 | |
72,025 | Western Union Company | 1,312,296 | ||
35,900 | * | Whiting Petroleum Corporation | 1,700,942 | |
140,448,828 | ||||
United Kingdom—8.3% | ||||
32,260 | AstraZeneca, PLC | 1,539,366 | ||
24,500 | AstraZeneca, PLC (ADR) | 1,172,570 | ||
142,252 | BG Group, PLC | 2,871,365 | ||
460,810 | BP, PLC | 3,248,075 | ||
44,195 | BP, PLC (ADR) | 1,872,100 | ||
53,686 | British American Tobacco, PLC | 2,756,385 | ||
51,764 | Imperial Tobacco Group, PLC | 1,915,854 | ||
292,448 | National Grid, PLC | 3,225,443 | ||
13,900 | National Grid, PLC (ADR) | 769,504 | ||
151,516 | Rexam, PLC | 1,064,064 | ||
15,948 | Rio Tinto, PLC | 742,971 | ||
200,369 | * | Rolls-Royce Holdings, PLC | 2,727,584 | |
23,905,281 | ||||
France—7.0% | ||||
20,515 | Accor SA | 685,021 | ||
28,154 | Air Liquide SA | 3,493,443 | ||
182,240 | AXA SA | 2,717,306 | ||
18,686 | BNP Paribas SA | 888,985 | ||
10,904 | Bureau Veritas SA | 1,121,121 | ||
48,112 | Danone SA | 2,965,452 | ||
23,687 | Pernod Ricard SA | 2,660,635 | ||
46,207 | Rexel SA | 930,917 | ||
40,096 | Safran SA | 1,443,570 | ||
16,681 | Unibail-Rodamco | 3,328,474 | ||
20,234,924 | ||||
Japan—5.3% | ||||
33,400 | Daiichi Sankyo Company, Ltd. | 553,805 | ||
29,200 | Daito Trust Construction Company, Ltd. | 2,946,272 | ||
28,200 | Eisai Company, Ltd. | 1,275,887 | ||
31,300 | FamilyMart Co., Ltd. | 1,544,884 | ||
17,700 | FANUC, Ltd. | 2,862,031 |
92 |
Shares | Security | Value | ||
Japan (continued) | ||||
2,400 | Fast Retailing Company, Ltd. | $ 559,897 | ||
18,900 | Lixil Group Corporation | 452,337 | ||
508,300 | Mitsubishi UFJ Financial Group, Inc. | 2,391,231 | ||
81,000 | Mitsui Fudosan Company, Ltd. | 1,627,288 | ||
84,900 | Rakuten, Inc. | 867,551 | ||
15,081,183 | ||||
Switzerland—4.1% | ||||
12,647 | * | Actelion, Ltd. – Registered | 633,561 | |
10,977 | Compagnie Financiere Richemont SA | 658,760 | ||
1,537 | Givaudan SA | 1,459,643 | ||
29,143 | Julius Baer Group, Ltd. | 1,017,121 | ||
23,467 | Roche Holding AG – Genusscheine | 4,387,265 | ||
446 | SGS SA – Registered | 916,867 | ||
42,431 | Swiss Reinsurance Company, Ltd. | 2,729,255 | ||
11,802,472 | ||||
Canada—3.6% | ||||
58,370 | Barrick Gold Corporation | 2,437,531 | ||
38,900 | Canadian National Railway Company | 3,427,644 | ||
14,100 | Canadian Natural Resources, Ltd. | 433,769 | ||
39,710 | EnCana Corporation | 869,709 | ||
15,000 | * | MEG Energy Corporation | 568,322 | |
50,700 | Tim Hortons, Inc. | 2,636,122 | ||
10,373,097 | ||||
Sweden—2.1% | ||||
84,866 | Assa Abloy AB – Class “B” | 2,759,575 | ||
65,528 | SKF AB – “B” Shares | 1,416,179 | ||
129,424 | Volvo AB – “B” Shares | 1,818,008 | ||
5,993,762 | ||||
Brazil—1.8% | ||||
131,400 | BR Malls Participacoes SA | 1,807,657 | ||
46,300 | Cia de Concessoes Rodoviarias | 411,698 | ||
116,900 | Julio Simoes Logistica SA | 619,994 | ||
35,900 | Localiza Rent a Car SA | 621,455 | ||
52,600 | Petroleo Brasileiro SA – Petrobras (ADR) | 1,206,644 | ||
47,291 | Raia Drogasil SA | 537,292 | ||
5,204,740 |
93 |
Portfolio of Investments (continued)
GLOBAL FUND
September 30, 2012
Shares | Security | Value | ||
South Korea—1.7% | ||||
6,738 | Hyundai Motor Company | $ 1,527,747 | ||
2,650 | Samsung Electronics Company, Ltd. | 3,209,303 | ||
4,737,050 | ||||
Hong Kong—1.5% | ||||
463,800 | AIA Group, Ltd. | 1,728,800 | ||
471,600 | Sands China, Ltd. | 1,760,916 | ||
484,295 | Shangri-La Asia, Ltd. | 939,451 | ||
4,429,167 | ||||
Australia—1.5% | ||||
254,095 | Transurban Group | 1,585,402 | ||
243,197 | Westfield Group | 2,569,472 | ||
4,154,874 | ||||
China—1.3% | ||||
1,174,000 | China Construction Bank Corporation | 814,642 | ||
520,600 | China Pacific Insurance Group Company, Ltd. | 1,574,575 | ||
176,000 | ENN Energy Holdings, Ltd. | 741,160 | ||
46,000 | Hengan International Group Company, Ltd. | 434,889 | ||
225,500 | Zhongsheng Group Holdings, Ltd. | 281,830 | ||
3,847,096 | ||||
Italy—1.3% | ||||
821,197 | Snam Rete Gas SpA | 3,644,834 | ||
Taiwan—1.2% | ||||
210,900 | Taiwan Semiconductor Manufacturing Company, Ltd. (ADR) | 3,336,438 | ||
Israel—1.1% | ||||
75,605 | Teva Pharmaceutical Industries, Ltd. (ADR) | 3,130,803 | ||
Spain—1.1% | ||||
99,803 | Repsol SA | 1,937,511 | ||
88,604 | Telefonica SA | 1,182,641 | ||
3,120,152 |
94 |
Shares | Security | Value | ||
Germany—1.0% | ||||
11,996 | Continental AG | $ 1,175,988 | ||
25,283 | GSW Immobilien AG | 938,720 | ||
124,628 | Infineon Technologies AG | 791,732 | ||
2,906,440 | ||||
Ireland—.9% | ||||
22,610 | Covidien, PLC | 1,343,486 | ||
42,679 | CRH, PLC | 821,505 | ||
43,500 | * | Elan Corporation, PLC (ADR) | 466,320 | |
2,631,311 | ||||
Belgium—.7% | ||||
39,095 | Umicore SA | 2,045,786 | ||
Finland—.5% | ||||
13,845 | Kone Oyj – Class “B” | 959,158 | ||
14,038 | Nokian Renkaat Oyj | 571,597 | ||
1,530,755 | ||||
Norway—.5% | ||||
19,302 | * | Algeta ASA | 499,004 | |
49,934 | Telenor ASA | 974,292 | ||
1,473,296 | ||||
India—.5% | ||||
284,481 | ITC, Ltd. | 1,469,194 | ||
Russia—.5% | ||||
67,700 | Sberbank of Russia (ADR) | 788,705 | ||
26,900 | * | Yandex NV | 648,559 | |
1,437,264 | ||||
Mexico—.3% | ||||
72,300 | * | Grupo Financiero Santander Mexico SAB de CV (ADR) | 990,510 | |
Netherlands—.3% | ||||
10,500 | ASML Holding NV | 563,640 | ||
49,148 | ING Groep NV – CVA | 388,796 | ||
952,436 |
95 |
Portfolio of Investments (continued)
GLOBAL FUND
September 30, 2012
Shares or | |||||||
Principal | |||||||
Amount | Security | Value | |||||
Portugal—.2% | |||||||
127,952 | Portugal Telecom SGPS SA | $ 633,258 | |||||
Austria—.2% | |||||||
21,266 | * | Erste Group Bank AG | 475,086 | ||||
Malaysia—.1% | |||||||
397,400 | Airasia Berhad | 392,654 | |||||
United Arab Emirates—.1% | |||||||
92,597 | * | NMC Health, PLC | 270,642 | ||||
Greece—.1% | |||||||
48,997 | Hellenic Telecommunications Organization SA | 183,431 | |||||
Total Value of Common Stocks (cost $229,186,007) | 280,836,764 | ||||||
SHORT-TERM U.S. GOVERNMENT | |||||||
OBLIGATIONS—1.9% | |||||||
United States | |||||||
U.S. Treasury Bills: | |||||||
$ 4,500M | 0.067%, 10/18/2012 | 4,499,858 | |||||
1,000M | 0.05%, 12/13/2012 | 999,898 | |||||
Total Value of Short-Term U.S. Government Obligations (cost $5,499,756) | 5,499,756 | ||||||
Total Value of Investments (cost $234,685,763) | 99.5 | % | 286,336,520 | ||||
Other Assets, Less Liabilities | .5 | 1,379,723 | |||||
Net Assets | 100.0 | % | $287,716,243 |
* | Non-income producing |
Summary of Abbreviations: | |
ADR American Depositary Receipts |
96 |
Accounting Standards Codification (“ASC”) 820 established a three-tier hierarchy of inputs to establish a classification of fair value measurements for disclosure purposes. The three-tier hierarchy of inputs is summarized in the three broad Levels listed below:
Level 1 — Unadjusted quoted prices in active markets for identical securities that the Fund has the ability to access. |
Level 2 — Observable inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. These inputs may include quoted prices for the identical instrument on an inactive market, prices for similar instruments, interest rates, prepayment speeds, credit risk, yield curves, default rates and similar data. |
Level 3 — Unobservable inputs for the asset or liability, to the extent relevant observable inputs are not available, representing the Fund’s own assumption about the assumptions a market participant would use in valuing the asset or liability, and would be based on the best information available. |
The inputs methodology used for valuing securities are not necessarily an indication of the risk associated with investing in those securities.
The following is a summary, by category of Level, of inputs used to value the Fund’s investments as of September 30, 2012:
Level 1 | Level 2 | Level 3 | Total | |||||||||
Common Stocks | ||||||||||||
United States | $ | 140,448,828 | $ | — | $ | — | $ | 140,448,828 | ||||
United Kingdom | 23,905,281 | — | — | 23,905,281 | ||||||||
France | 20,234,924 | — | — | 20,234,924 | ||||||||
Japan | 15,081,183 | — | — | 15,081,183 | ||||||||
Switzerland | 11,802,472 | — | — | 11,802,472 | ||||||||
Canada | 10,373,097 | — | — | 10,373,097 | ||||||||
Sweden | 5,993,762 | — | — | 5,993,762 | ||||||||
Brazil | 5,204,740 | — | — | 5,204,740 | ||||||||
South Korea | 4,737,050 | — | — | 4,737,050 | ||||||||
Hong Kong | 4,429,167 | — | — | 4,429,167 | ||||||||
Australia | 4,154,874 | — | — | 4,154,874 | ||||||||
China | 3,847,096 | — | — | 3,847,096 | ||||||||
Italy | 3,644,834 | — | — | 3,644,834 | ||||||||
Taiwan | 3,336,438 | — | — | 3,336,438 | ||||||||
Israel | 3,130,803 | — | — | 3,130,803 | ||||||||
Spain | 3,120,152 | — | — | 3,120,152 | ||||||||
Germany | 2,906,440 | — | — | 2,906,440 | ||||||||
Ireland | 2,631,311 | — | — | 2,631,311 | ||||||||
Belgium | 2,045,786 | — | — | 2,045,786 | ||||||||
Finland | 1,530,755 | — | — | 1,530,755 |
97 |
Portfolio of Investments (continued)
GLOBAL FUND
September 30, 2012
Level 1 | Level 2 | Level 3 | Total | |||||||||
Common Stocks (continued) | ||||||||||||
Norway | $ | 1,473,296 | $ | — | $ | — | $ | 1,473,296 | ||||
India | 1,469,194 | — | — | 1,469,194 | ||||||||
Russia | 1,437,264 | — | — | 1,437,264 | ||||||||
Mexico | 990,510 | — | — | 990,510 | ||||||||
Netherlands | 952,436 | — | — | 952,436 | ||||||||
Portugal | 633,258 | — | — | 633,258 | ||||||||
Austria | 475,086 | — | — | 475,086 | ||||||||
Malaysia | 392,654 | — | — | 392,654 | ||||||||
United Arab Emirates | 270,642 | — | — | 270,642 | ||||||||
Greece | 183,431 | — | — | 183,431 | ||||||||
Short-Term U.S. Government | ||||||||||||
Obligations | — | 5,499,756 | — | 5,499,756 | ||||||||
Total Investments in Securities | $ | 280,836,764 | $ | 5,499,756 | $ | — | $ | 286,336,520 |
During the year ended September 30, 2012, there were no transfers between Level 1 investments and |
Level 2 investments that had a material impact to the Fund. This does not include transfers between |
Level 1 investments and Level 2 investments due to the Fund utilizing international fair value pricing |
during the year. Transfers, if any, between Levels are recognized at the end of the reporting period. |
The following is a reconciliation of Fund investments valued using Level 3 inputs for the year:
Investments | ||||
in Common | ||||
Stocks | ||||
Balance, September 30, 2011 | $ | 299,006 | ||
Purchases | — | |||
Sales | (374,131) | |||
Change in unrealized appreciation | 2,662 | |||
Realized gain (loss) | 72,463 | |||
Transfer into Level 3 | — | |||
Transfer out of Level 3 | — | |||
Balance, September 30, 2012 | $ | — |
98 | See notes to financial statements |
Portfolio Manager’s Letter
SELECT GROWTH FUND
Dear Investor:
This is the annual report for the First Investors Select Growth Fund for the fiscal year ended September 30, 2012. During the period, the Fund’s return on a net asset value basis was 26.5% for Class A shares and 25.7% for Class B shares.
The Fund’s performance during the first half of the fiscal year continued to build on the strong performance seen during last year. The market gained almost 25% and the Fund outperformed its benchmark by a small margin. However, as the second half of the fiscal year commenced, investors became increasingly fearful that Europe would be unable to solve its problems and that the U.S. economy was slowing down. This led to a significant correction in April and May. The upward trajectory resumed in June and carried on through the end of the fiscal year. During this correction and recovery, investors favored the perceived safety of larger companies and companies paying dividends. The Fund’s exposure to these attributes was relatively low and thus underperformed during the second half and the year overall.
From a sector perspective, consumer discretionary and materials generated most of the positive performance. These sectors, being sensitive to economic growth, posted better than average returns in the benchmark. In consumer discretionary, positions in Home Depot and Ross Stores produced significant positive performance, as consumer spending continued to be a positive data point in the U.S. economy. The stocks returned 88% and 66%, respectively, for the Fund. In the materials sector, the Fund benefited from owning fertilizer manufacturer CF Industries, as the stock gained 82% during the year.
Detractors from performance included the information technology and health care sectors. In information technology, Check Point Software and Global Payments posted negative returns for the Fund. Check Point Software, a manufacturer of network security software and hardware, provided a more cautious outlook, as customers were trading down to lower priced solutions. Global Payments, a provider of electronic payment processing services, saw its stock drop after announcing a security breach involving 1.5 million credit card numbers.
In the health care sector, positions in Cooper Companies and Endo Health Solutions contributed to underperformance. Endo Health Solutions negotiated a patent settlement with a generic competitor that was less favorable than the market expected. Consequently, the stock gained only 7% during the holding period. Shares of Cooper Companies, a manufacturer of contact lenses, dropped almost 30% during the first fiscal quarter due to some manufacturing issues with a new lens. The issues were quickly resolved and the stock spent the rest of the year recovering, ending the year with a positive return of almost 20%.
99 |
Portfolio Manager’s Letter (continued)
SELECT GROWTH FUND
We are pleased that the market continued to recognize the strong business performance of the companies held in the Fund during this year, as the Fund outperformed the market during the first half of the year and again during the last two months. While underperformance during the correction tilted full-year results to trailing the benchmark, we are encouraged that investors still favor companies with strong fundamental drivers under normal conditions. We continue to believe our focus on high quality companies with strong earnings expectations are the key to generating excess return over the long term.
Thank you for placing your trust in First Investors. As always, we appreciate the opportunity to serve your investment needs.
100 |
Fund Expenses (unaudited)
SELECT GROWTH FUND
The examples below show the ongoing costs (in dollars) of investing in your Fund and will help you in comparing these costs with costs of other mutual funds. Please refer to page 2 for a detailed explanation of the information presented in these examples.
Beginning | Ending | ||
Account | Account | Expenses Paid | |
Value | Value | During Period | |
(4/1/12) | (9/30/12) | (4/1/12–9/30/12)* | |
Expense Example – Class A Shares | |||
Actual | $1,000.00 | $997.50 | $7.04 |
Hypothetical | |||
(5% annual return before expenses) | $1,000.00 | $1,017.95 | $7.11 |
Expense Example – Class B Shares | |||
Actual | $1,000.00 | $993.15 | $10.51 |
Hypothetical | |||
(5% annual return before expenses) | $1,000.00 | $1,014.45 | $10.63 |
* | Expenses are equal to the annualized expense ratio of 1.41% for Class A shares and 2.11% for |
Class B shares, multiplied by the average account value over the period, multiplied by 183/366 | |
(to reflect the one-half year period). |
Portfolio Composition
BY SECTOR
Portfolio holdings and allocations are subject to change. Percentages are as of September 30, 2012, |
and are based on the total market value of investments. |
101 |
Cumulative Performance Information (unaudited)
SELECT GROWTH FUND
Comparison of change in value of $10,000 investment in the First Investors Select Growth Fund (Class A shares) and the Russell 3000 Growth Index.
The graph compares a $10,000 investment in the First Investors Select Growth Fund (Class A shares) beginning 9/30/02 with a theoretical investment in the Russell 3000 Growth Index (the “Index”). The Index is an unmanaged index that measures the performance of those Russell 3000 Index companies with higher price-to-book ratios and higher forecasted growth values (the Russell 3000 Index is an unmanaged index that measures the performance of the 3,000 largest U.S. companies based on total market capitalization). It is not possible to invest directly in this Index. In addition, the Index does not reflect fees and expenses associated with the active management of a mutual fund portfolio. For purposes of the graph and the accompanying table, unless otherwise indicated, it has been assumed that the maximum sales charge was deducted from the initial $10,000 investment in the Fund. Class B shares performance may be greater than or less than that shown in the line graph above for Class A shares based on differences in the sales loads and fees paid by shareholders investing in the different classes.
* Average Annual Total Return figures (for the periods ended 9/30/12) include the reinvestment of all dividends and distributions. “N.A.V. Only” returns are calculated without sales charges. The Class A “S.E.C. Standardized” returns shown are based on the maximum sales charge of 5.75%. The Class B “S.E.C. Standardized” returns are adjusted for the applicable deferred sales charge (maximum of 4% in the first year). Results represent past performance and do not indicate future results. The graph and the returns shown do not reflect the deduction of taxes that a shareholder would pay on distributions or the redemption of fund shares. Investment return and principal value of an investment will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than the original cost. Index figures are from Frank Russell and Company and all other figures are from First Investors Management Company, Inc.
102 |
Portfolio of Investments
SELECT GROWTH FUND
September 30, 2012
Shares | Security | Value | ||
COMMON STOCKS—99.2% | ||||
Consumer Discretionary—11.5% | ||||
137,600 | * | Bed Bath & Beyond, Inc. | $ 8,668,800 | |
137,800 | Home Depot, Inc. | 8,318,986 | ||
127,700 | Mattel, Inc. | 4,530,796 | ||
159,000 | Ross Stores, Inc. | 10,271,400 | ||
31,789,982 | ||||
Consumer Staples—12.5% | ||||
392,200 | * | Dean Foods Company | 6,412,470 | |
100,200 | Ingredion, Inc. | 5,527,032 | ||
71,800 | Kimberly-Clark Corporation | 6,159,004 | ||
260,100 | Kroger Company | 6,122,754 | ||
106,600 | Whole Foods Market, Inc. | 10,382,840 | ||
34,604,100 | ||||
Energy—8.0% | ||||
55,400 | Chevron Corporation | 6,457,424 | ||
47,700 | ExxonMobil Corporation | 4,362,165 | ||
72,700 | Helmerich & Payne, Inc. | 3,461,247 | ||
51,400 | Noble Energy, Inc. | 4,765,294 | ||
34,900 | Occidental Petroleum Corporation | 3,003,494 | ||
22,049,624 | ||||
Financials—11.1% | ||||
121,800 | American Express Company | 6,925,548 | ||
218,400 | BB&T Corporation | 7,242,144 | ||
210,100 | East West Bancorp, Inc. | 4,437,312 | ||
74,200 | Travelers Companies, Inc. | 5,064,892 | ||
208,800 | U.S. Bancorp | 7,161,840 | ||
30,831,736 | ||||
Health Care—14.3% | ||||
84,600 | Cooper Companies, Inc. | 7,991,316 | ||
57,500 | Johnson & Johnson | 3,962,325 | ||
70,600 | McKesson Corporation | 6,073,718 | ||
139,600 | Omnicare, Inc. | 4,742,212 | ||
193,500 | ResMed, Inc. | 7,830,945 | ||
106,900 | * | Watson Pharmaceuticals, Inc. | 9,103,604 | |
39,704,120 |
103 |
Portfolio of Investments (continued)
SELECT GROWTH FUND
September 30, 2012
Shares or | |||||||
Principal | |||||||
Amount | Security | Value | |||||
Industrials—10.0% | |||||||
118,380 | * | AGCO Corporation | $ 5,620,683 | ||||
108,000 | * | Alaska Air Group, Inc. | 3,786,480 | ||||
202,800 | AMETEK, Inc. | 7,189,260 | |||||
164,500 | Robert Half International, Inc. | 4,380,635 | |||||
82,000 | Wabtec Corporation | 6,583,780 | |||||
27,560,838 | |||||||
Information Technology—25.8% | |||||||
28,700 | Apple, Inc. | 19,150,362 | |||||
547,800 | * | Cadence Design Systems, Inc. | 7,047,447 | ||||
119,800 | * | Check Point Software Technologies, Ltd. | 5,769,568 | ||||
44,200 | International Business Machines Corporation | 9,169,290 | |||||
106,900 | Motorola Solutions, Inc. | 5,403,795 | |||||
213,500 | * | Nuance Communications, Inc. | 5,314,015 | ||||
206,200 | Oracle Corporation | 6,493,238 | |||||
219,000 | * | TIBCO Software, Inc. | 6,620,370 | ||||
67,700 | * | VMware, Inc. – Class “A” | 6,549,298 | ||||
71,517,383 | |||||||
Materials—3.6% | |||||||
44,500 | CF Industries Holdings, Inc. | 9,889,680 | |||||
Utilities—2.4% | |||||||
316,900 | CenterPoint Energy, Inc. | 6,749,970 | |||||
Total Value of Common Stocks (cost $200,693,876) | 274,697,433 | ||||||
SHORT-TERM U.S. GOVERNMENT | |||||||
OBLIGATIONS—.5% | |||||||
$ 1,300M | U.S. Treasury Bills, 0.067%, 10/18/2012 (cost $1,299,959) | 1,299,959 | |||||
Total Value of Investments (cost $201,993,835) | 99.7 | % | 275,997,392 | ||||
Other Assets, Less Liabilities | .3 | 874,703 | |||||
Net Assets | 100.0 | % | $ 276,872,095 |
* Non-income producing |
104 |
Accounting Standards Codification (“ASC”) 820 established a three-tier hierarchy of inputs to establish a classification of fair value measurements for disclosure purposes. The three-tier hierarchy of inputs is summarized in the three broad Levels listed below:
Level 1 — Unadjusted quoted prices in active markets for identical securities that the Fund has the ability to access. |
Level 2 — Observable inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. These inputs may include quoted prices for the identical instrument on an inactive market, prices for similar instruments, interest rates, prepayment speeds, credit risk, yield curves, default rates and similar data. |
Level 3 — Unobservable inputs for the asset or liability, to the extent relevant observable inputs are not available, representing the Fund’s own assumption about the assumptions a market participant would use in valuing the asset or liability, and would be based on the best information available. |
The inputs methodology used for valuing securities are not necessarily an indication of the risk associated with investing in those securities.
The following is a summary, by category of Level, of inputs used to value the Fund’s investments as of September 30, 2012:
Level 1 | Level 2 | Level 3 | Total | |||||||||
Common Stocks | $ | 274,697,433 | $ | — | $ | — | $ | 274,697,433 | ||||
Short-Term U.S. Government | ||||||||||||
Obligations | — | 1,299,959 | — | 1,299,959 | ||||||||
Total Investments in Securities* | $ | 274,697,433 | $ | 1,299,959 | $ | — | $ | 275,997,392 |
* | The Portfolio of Investments provides information on the industry categorization for the portfolio. |
During the year ended September 30, 2012, there were no transfers between Level 1 investments | |
and Level 2 investments that had a material impact to the Fund. Transfers, if any, between Levels are | |
recognized at the end of the reporting period. |
See notes to financial statements | 105 |
Portfolio Managers’ Letter
OPPORTUNITY FUND
Dear Investor:
This is the annual report for the First Investors Opportunity Fund for the fiscal year ended September 30, 2012. During the period, the Fund’s return on a net asset value basis was 27.0% for Class A shares and 26.1% for Class B shares, including capital gains distributions of 88.8 cents per share for both Class A and Class B shares, and dividends of 16.6 cents per share on Class A shares and 12.6 cents per share on Class B shares.
The Fund’s performance was mainly attributable to investments in industrials and consumer discretionary stocks. The Fund benefited from broad based strength among industrial stocks. Snap-on, best known for its mobile vans that distribute professional tools, benefited from favorable automotive market fundamentals, such as an aging U.S. vehicle fleet and a shift to independent repair garages. Additionally, TAL International, a leasor of intermodal containers for transoceanic shipping, benefited from tight container supply even as global shipping demand continued to recover. EnerSys, a maker of lead acid industrial batteries, benefited this year from favorable lead costs and strong North American orders for fork trucks. IDEX Corporation, a diversified manufacturer of engineered industrial products including pumps, benefited from restructuring activity that improved profitability despite macroeconomic concerns, which (in retrospect) were overstated. Triumph Group, a maker of aircraft components and engine accessories, benefited from the acquisition of Vought Aircraft, a maker of fuselage, wing, cabin and nacelle substructures.
Among our consumer discretionary stocks, the equity markets rewarded U.S.-focused specialty retail companies that consistently returned cash to shareholders. Pier 1 Imports, for example, benefited from successful merchandising and marketing initiatives, which dramatically reduced markdowns and clearance. This, in turn, enabled Pier 1 to restart a dividend and share repurchase program. Similarly, GNC Holdings, a retailer of health and wellness products, initiated a dividend and a share repurchase program a mere eight months after its IPO. The company’s introduction of its Total Lean, Beyond Raw and Vitapak products, drove strong sales growth in North America. Limited Brands, a U.S.-focused specialty retailer primarily known for Victoria’s Secret, has leveraged its brand power in intimate apparel to open new stores and expand into complementary categories, such as lounge wear. The company’s strong cash flow has also enabled it to authorize two separate special dividends, two share repurchase programs, and two regular dividend increases.
The Fund’s absolute performance was also attributable to merger and acquisition activity. Par Pharmaceutical, a maker of generic drugs, was acquired eight months after we added it to the Fund. The company was set to benefit from recent new drug launches and a favorable regulatory environment. Interestingly, a private equity firm
106 |
also recognized the tailwinds supporting the company’s future earnings growth and decided to take advantage of Par’s apparent undervaluation in the equity markets by snapping it up.
Among negatives to relative performance, the Fund’s allocation to the financials sector hurt. The Fund remained underweight in financial stocks, as we believed an important U.S. election and fiscal cliff decision on the near-term horizon clouded their earnings growth prospects. Our decision to underweight financials was also a consequence of our decision to overweight other sectors. For example, the Fund was rewarded by our decision to overweight the industrials sector, which we believe has the potential for strong earnings growth.
Thank you for placing your trust in First Investors. As always, we appreciate the opportunity to serve your investment needs.
107 |
Fund Expenses (unaudited)
OPPORTUNITY FUND
The examples below show the ongoing costs (in dollars) of investing in your Fund and will help you in comparing these costs with costs of other mutual funds. Please refer to page 2 for a detailed explanation of the information presented in these examples.
Beginning | Ending | ||
Account | Account | Expenses Paid | |
Value | Value | During Period | |
(4/1/12) | (9/30/12) | (4/1/12–9/30/12)* | |
Expense Example – Class A Shares | |||
Actual | $1,000.00 | $982.93 | $6.74 |
Hypothetical | |||
(5% annual return before expenses) | $1,000.00 | $1,018.20 | $6.86 |
Expense Example – Class B Shares | |||
Actual | $1,000.00 | $979.74 | $10.20 |
Hypothetical | |||
(5% annual return before expenses) | $1,000.00 | $1,014.70 | $10.38 |
* | Expenses are equal to the annualized expense ratio of 1.36% for Class A shares and 2.06% for |
Class B shares, multiplied by the average account value over the period, multiplied by 183/366 | |
(to reflect the one-half year period). |
Portfolio Composition
TOP TEN SECTORS
Portfolio holdings and allocations are subject to change. Percentages are as of September 30, 2012, |
and are based on the total market value of investments. |
108 |
Cumulative Performance Information (unaudited)
OPPORTUNITY FUND
Comparison of change in value of $10,000 investment in the First Investors Opportunity Fund (Class A shares) and the Standard & Poor’s MidCap 400 Index.
The graph compares a $10,000 investment in the First Investors Opportunity Fund (Class A shares) beginning 9/30/02 with a theoretical investment in the Standard & Poor’s MidCap 400 Index (the “Index”). The Index is an unmanaged capitalization-weighted index of 400 stocks designed to measure performance of the mid-range sector of the U.S. stock market. As of 9/30/12 the median market capitalization is approximately $2.54 billion. It is not possible to invest directly in this Index. In addition, the Index does not reflect fees and expenses associated with the active management of a mutual fund portfolio. For purposes of the graph and the accompanying table, unless otherwise indicated, it has been assumed that the maximum sales charge was deducted from the initial $10,000 investment in the Fund and all dividends and distributions were reinvested. Class B shares performance may be greater than or less than that shown in the line graph above for Class A shares based on differences in sales loads and fees paid by shareholders investing in the different classes.
* Average Annual Total Return figures (for the periods ended 9/30/12) include the reinvestment of all dividends and distributions. “N.A.V. Only” returns are calculated without sales charges. The Class A “S.E.C. Standardized” returns shown are based on the maximum sales charge of 5.75%. The Class B “S.E.C. Standardized” returns are adjusted for the applicable deferred sales charge (maximum of 4% in the first year). During the periods shown, some of the expenses of the Fund were waived or assumed. If such expenses had been paid by the Fund, the Class A “S.E.C. Standardized” Average Annual Total Return for Ten Years would have been 8.39%. The Class B “S.E.C. Standardized” Average Annual Total Return for Ten Years would have been 8.39%. Results represent past performance and do not indicate future results. The graph and the returns shown do not reflect the deduction of taxes that a shareholder would pay on distributions or the redemption of fund shares. Investment return and principal value of an investment will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than the original cost. Index figures are from Standard & Poor’s and all other figures are from First Investors Management Company, Inc.
109 |
Portfolio of Investments
OPPORTUNITY FUND
September 30, 2012
Shares | Security | Value | ||
COMMON STOCKS—98.5% | ||||
Consumer Discretionary—15.1% | ||||
230,000 | Allison Transmission Holdings, Inc. | $ 4,627,600 | ||
90,000 | * | BorgWarner, Inc. | 6,219,900 | |
73,500 | Coach, Inc. | 4,117,470 | ||
390,000 | Dana Holding Corporation | 4,797,000 | ||
80,000 | * | Del Frisco’s Restaurant Group, Inc. | 1,192,000 | |
210,000 | * | Delphi Automotive, PLC | 6,510,000 | |
181,400 | * | Dreamworks Animation SKG, Inc. – Class “A” | 3,488,322 | |
80,000 | GNC Holdings, Inc. – Class “A” | 3,117,600 | ||
165,000 | Limited Brands, Inc. | 8,127,900 | ||
275,000 | Newell Rubbermaid, Inc. | 5,249,750 | ||
50,000 | Nordstrom, Inc. | 2,759,000 | ||
6,900 | Oxford Industries, Inc. | 389,505 | ||
310,000 | Pier 1 Imports, Inc. | 5,809,400 | ||
25,000 | Ralph Lauren Corporation | 3,780,750 | ||
547,200 | Stewart Enterprises, Inc. – Class “A” | 4,593,744 | ||
35,000 | * | Tempur-Pedic International, Inc. | 1,046,150 | |
22,500 | Tiffany & Company | 1,392,300 | ||
135,000 | * | TRW Automotive Holdings Corporation | 5,900,850 | |
64,600 | Tupperware Brands Corporation | 3,461,914 | ||
100,000 | Wyndham Worldwide Corporation | 5,248,000 | ||
81,829,155 | ||||
Consumer Staples—3.8% | ||||
150,000 | Avon Products, Inc. | 2,392,500 | ||
45,000 | McCormick & Company, Inc. | 2,791,800 | ||
135,000 | Nu Skin Enterprises, Inc. – Class “A” | 5,242,050 | ||
479,700 | * | Prestige Brands Holdings, Inc. | 8,135,712 | |
67,386 | Tootsie Roll Industries, Inc. | 1,818,074 | ||
20,380,136 | ||||
Energy—7.9% | ||||
30,000 | * | Dril-Quip, Inc. | 2,156,400 | |
130,000 | Ensco, PLC – Class “A” | 7,092,800 | ||
40,000 | EOG Resources, Inc. | 4,482,000 | ||
90,000 | EQT Corporation | 5,310,000 | ||
43,000 | Hess Corporation | 2,309,960 | ||
139,700 | National Oilwell Varco, Inc. | 11,191,367 |
110 |
Shares | Security | Value | ||
Energy (continued) | ||||
110,000 | * | Plains Exploration & Production Company | $ 4,121,700 | |
225,000 | Talisman Energy, Inc. | 2,997,000 | ||
250,000 | * | Weatherford International, Inc. | 3,170,000 | |
42,831,227 | ||||
Financials—15.2% | ||||
115,000 | Ameriprise Financial, Inc. | 6,519,350 | ||
152,300 | Berkshire Hills Bancorp, Inc. | 3,484,624 | ||
225,000 | Brookline Bancorp, Inc. | 1,984,500 | ||
80,000 | City National Corporation | 4,120,800 | ||
178,600 | Discover Financial Services | 7,095,778 | ||
150,000 | Douglas Emmett, Inc. (REIT) | 3,460,500 | ||
32,500 | Federal Realty Investment Trust (REIT) | 3,422,250 | ||
90,000 | Financial Select Sector SPDR Fund (ETF) | 1,404,000 | ||
225,000 | FirstMerit Corporation | 3,314,250 | ||
51,000 | IBERIABANK Corporation | 2,335,800 | ||
138,200 | Invesco, Ltd. | 3,453,618 | ||
75,000 | M&T Bank Corporation | 7,137,000 | ||
220,000 | NASDAQ OMX Group, Inc. | 5,124,900 | ||
250,000 | New York Community Bancorp, Inc. | 3,540,000 | ||
100,000 | Oritani Financial Corporation | 1,505,000 | ||
331,300 | Protective Life Corporation | 8,683,373 | ||
25,000 | SPDR S&P MidCap 400 ETF Trust (ETF) | 4,498,000 | ||
92,000 | SPDR S&P Regional Banking (ETF) | 2,634,880 | ||
73,800 | Tompkins Financial Corporation | 2,990,376 | ||
175,000 | Waddell & Reed Financial, Inc. – Class “A” | 5,734,750 | ||
82,443,749 | ||||
Health Care—10.6% | ||||
75,000 | DENTSPLY International, Inc. | 2,860,500 | ||
75,000 | * | Gilead Sciences, Inc. | 4,974,750 | |
25,000 | * | Hi-Tech Pharmacal Company, Inc. | 827,750 | |
87,500 | McKesson Corporation | 7,527,625 | ||
3,500 | * | Mettler-Toledo International, Inc. | 597,590 | |
130,000 | * | Par Pharmaceutical Companies, Inc. | 6,497,400 | |
20,000 | Perrigo Company | 2,323,400 | ||
155,000 | * | Sirona Dental Systems, Inc. | 8,828,800 |
111 |
Portfolio of Investments (continued)
OPPORTUNITY FUND
September 30, 2012
Shares | Security | Value | ||
Health Care (continued) | ||||
125,000 | Thermo Fisher Scientific, Inc. | $ 7,353,750 | ||
365,000 | Warner Chilcott, PLC – Class “A” | 4,927,500 | ||
130,000 | * | Watson Pharmaceuticals, Inc. | 11,070,800 | |
57,789,865 | ||||
Industrials—21.3% | ||||
86,300 | A.O. Smith Corporation | 4,965,702 | ||
205,000 | Altra Holdings, Inc. | 3,731,000 | ||
120,000 | Armstrong World Industries, Inc. | 5,564,400 | ||
110,000 | Chicago Bridge & Iron Company NV – NY Shares | 4,189,900 | ||
65,000 | Dun & Bradstreet Corporation | 5,175,300 | ||
250,000 | * | EnerSys, Inc. | 8,822,500 | |
120,000 | * | Esterline Technologies Corporation | 6,736,800 | |
140,000 | Generac Holdings, Inc. | 3,204,600 | ||
180,000 | IDEX Corporation | 7,518,600 | ||
295,000 | ITT Corporation | 5,944,250 | ||
82,500 | J.B. Hunt Transport Services, Inc. | 4,293,300 | ||
175,000 | * | Mobile Mini, Inc. | 2,924,250 | |
120,000 | * | Pentair, Inc. | 5,341,200 | |
65,000 | Regal-Beloit Corporation | 4,581,200 | ||
40,000 | Roper Industries, Inc. | 4,395,600 | ||
85,500 | Snap-on, Inc. | 6,144,885 | ||
297,500 | TAL International Group, Inc. | 10,109,050 | ||
175,000 | Textainer Group Holdings, Ltd. | 5,346,250 | ||
75,000 | Timken Company | 2,787,000 | ||
177,500 | Triumph Group, Inc. | 11,099,075 | ||
90,000 | * | United Rentals, Inc. | 2,943,900 | |
115,818,762 | ||||
Information Technology—12.5% | ||||
275,000 | * | Arris Group, Inc. | 3,517,250 | |
125,000 | * | ATMI, Inc. | 2,321,250 | |
200,000 | Avago Technologies, Ltd. | 6,973,000 | ||
85,000 | * | CACI International, Inc. – Class “A” | 4,402,150 | |
45,000 | * | Fiserv, Inc. | 3,331,350 | |
250,000 | Intersil Corporation – Class “A” | 2,187,500 | ||
67,500 | Intuit, Inc. | 3,974,400 | ||
211,000 | * | NCR Corporation | 4,918,410 | |
225,000 | * | NeuStar, Inc. – Class “A” | 9,006,750 | |
500,000 | * | NVIDIA Corporation | 6,670,000 | |
250,000 | * | Symantec Corporation | 4,500,000 |
112 |
Shares or | |||||||
Principal | |||||||
Amount | Security | Value | |||||
Information Technology (continued) | |||||||
265,000 | TE Connectivity, Ltd. | $ 9,012,650 | |||||
225,000 | Technology Select Sector SPDR Fund (ETF) | 6,936,750 | |||||
67,751,460 | |||||||
Materials—7.7% | |||||||
110,000 | Agrium, Inc. | 11,380,600 | |||||
50,000 | Cabot Corporation | 1,828,500 | |||||
60,000 | Cytec Industries, Inc. | 3,931,200 | |||||
90,000 | Freeport-McMoRan Copper & Gold, Inc. | 3,562,200 | |||||
180,000 | International Paper Company | 6,537,600 | |||||
90,000 | Kronos Worldwide, Inc. | 1,344,600 | |||||
40,000 | Praxair, Inc. | 4,155,200 | |||||
70,000 | Rock-Tenn Company – Class “A” | 5,052,600 | |||||
55,000 | Sigma-Aldrich Corporation | 3,958,350 | |||||
41,750,850 | |||||||
Telecommunication Services—.4% | |||||||
140,000 | NTELOS Holdings Corporation | 2,431,800 | |||||
Utilities—4.0% | |||||||
111,000 | AGL Resources, Inc. | 4,541,010 | |||||
110,000 | Portland General Electric Company | 2,974,400 | |||||
135,000 | SCANA Corporation | 6,516,450 | |||||
200,000 | Wisconsin Energy Corporation | 7,534,000 | |||||
21,565,860 | |||||||
Total Value of Common Stocks (cost $401,177,747) | 534,592,864 | ||||||
SHORT-TERM U.S. GOVERNMENT | |||||||
OBLIGATIONS—1.0% | |||||||
U.S. Treasury Bills: | |||||||
$ 1,500M | 0.061%, 10/4/2012 | 1,499,992 | |||||
2,000M | 0.08%, 10/4/2012 | 1,999,987 | |||||
2,000M | 0.086%, 11/29/2012 | 1,999,718 | |||||
Total Value of Short-Term U.S. Government Obligations (cost $5,499,697) | 5,499,697 | ||||||
Total Value of Investments (cost $406,677,444) | 99.5 | % | 540,092,561 | ||||
Other Assets, Less Liabilities | .5 | 2,922,864 | |||||
Net Assets | 100.0 | % | $543,015,425 |
* Non-income producing |
113 |
Portfolio of Investments (continued)
OPPORTUNITY FUND
September 30, 2012
Summary of Abbreviations: | |
ETF | Exchange Traded Fund |
REIT | Real Estate Investment Trust |
Accounting Standards Codification (“ASC”) 820 established a three-tier hierarchy of inputs to establish a classification of fair value measurements for disclosure purposes. The three-tier hierarchy of inputs is summarized in the three broad Levels listed below:
Level 1 — Unadjusted quoted prices in active markets for identical securities that the Fund has the ability to access. |
Level 2 — Observable inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. These inputs may include quoted prices for the identical instrument on an inactive market, prices for similar instruments, interest rates, prepayment speeds, credit risk, yield curves, default rates and similar data. |
Level 3 — Unobservable inputs for the asset or liability, to the extent relevant observable inputs are not available, representing the Fund’s own assumption about the assumptions a market participant would use in valuing the asset or liability, and would be based on the best information available. |
The inputs methodology used for valuing securities are not necessarily an indication of the risk associated with investing in those securities.
The following is a summary, by category of Level, of inputs used to value the Fund’s investments as of September 30, 2012:
Level 1 | Level 2 | Level 3 | Total | |||||||||
Common Stocks | $ | 534,592,864 | $ | — | $ | — | $ | 534,592,864 | ||||
Short-Term U.S. Government | ||||||||||||
Obligations | — | 5,499,697 | — | 5,499,697 | ||||||||
Total Investments in Securities* | $ | 534,592,864 | $ | 5,499,697 | $ | — | $ | 540,092,561 |
* | The Portfolio of Investments provides information on the industry categorization for the portfolio. |
There were no transfers into or from Level 1 or Level 2 by the Fund during the year ended | |
September 30, 2012. Transfers, if any, between Levels are recognized at the end of the | |
reporting period. |
114 | See notes to financial statements |
Portfolio Managers’ Letter
SPECIAL SITUATIONS FUND
Dear Investor:
This is the annual report for the First Investors Special Situations Fund for the fiscal year ended September 30, 2012. During the period, the Fund’s return on a net asset value basis was 21.2% for Class A shares and 20.3% for Class B shares, including capital gains distributions of $1.757 per share for both Class A and Class B shares, and dividends of 3.0 cents per share on Class A shares.
Fund performance for fiscal year 2012 was positive, however it did not keep up with the broader market in the second half of the year, as stocks rallied in anticipation of another round of quantitative easing by the Federal Reserve (“the Fed”). The Fund, given its focus on strong cash flow and balance sheet metrics, has often underperformed in rallies and periods of sharp momentum, but has usually managed to outperform over a full market cycle. We believe this will continue to be the case in the future. Our underperformance this year was exacerbated by poor stock selection on our part, and also by the market’s rotation into more highly leveraged companies, especially in the financials sector, as interest rates fell.
The Fund’s top-performing sector for the reporting period was materials. Westlake Chemical was our top-performing stock in the sector, up 115%. Westlake is an integrated plastics manufacturer, and has prospered as feedstock costs, based on natural gas prices, have dropped. In fact, costs have fallen so much for Westlake that it is now exporting product to China. Management has also done an excellent job of expanding capacity in response to changes in feedstock costs. Chemtura was another top performer for us in the materials sector, up 72%. Chemtura is a broad-based chemical manufacturer that restructured during the financial crisis. We were able to purchase shares at a 25% discount to comparable peers.
Financials, our worst-performing sector, accounted for much of our underperformance over the reporting period, in a reversal of the previous four years. We have consistently managed the financials portion of the Fund with investments that we believed did not have significant credit risk. We have also been underweight banks, precisely because of our concern about credit exposure. This year, however, with interest rates at historic lows and a nascent housing recovery, bank stocks — especially leveraged bank stocks — have rallied strongly. Two poor performers in the Portfolio included Knight Capital and First Niagara. Knight Capital had a trading malfunction whose losses cut into the firm’s capital base. First Niagara made a large acquisition at a price the market viewed as unfavorable. We exited both positions.
115 |
Portfolio Managers’ Letter (continued)
SPECIAL SITUATIONS FUND
The stock market has been on a roller coaster ride over the past year: up sharply in the fall and winter; down sharply in the spring, after lower-than-expected U.S. economic data and worsening economic news from Europe and China; and up again in the summer on anticipation of another round of stimulus from the Fed. We remain concerned about slowing growth in the U.S. and abroad. The economic news that one reads in the headlines does have an impact on corporate growth rates, both directly and in how it affects the decision-making processes of companies for future hiring and investment. This has been underscored in the latest round of corporate earnings reports. We see some hope for a continuation of the current stock market rally if Congress passes some version of a Bowles-Simpson budget reform bill after the election.
In general, however, we believe that market expectations for revenue and earnings growth rates in 2013 are potentially too optimistic. Moreover, companies in more global, cyclical industries have seen their valuations compressed, as global growth has slowed. In this environment, we continue to place a premium on companies with financial strength and consistent free cash flow generation over market cycles. We maintain our commitment to fundamental research and a long-term view of the intrinsic value of the business.
Thank you for placing your trust in First Investors. As always, we appreciate the opportunity to serve your investment needs.
116 |
Fund Expenses (unaudited)
SPECIAL SITUATIONS FUND
The examples below show the ongoing costs (in dollars) of investing in your Fund and will help you in comparing these costs with costs of other mutual funds. Please refer to page 2 for a detailed explanation of the information presented in these examples.
Beginning | Ending | ||
Account | Account | Expenses Paid | |
Value | Value | During Period | |
(4/1/12) | (9/30/12) | (4/1/12–9/30/12)* | |
Expense Example – Class A Shares | |||
Actual | $1,000.00 | $953.14 | $6.98 |
Hypothetical | |||
(5% annual return before expenses) | $1,000.00 | $1,017.85 | $7.21 |
Expense Example – Class B Shares | |||
Actual | $1,000.00 | $949.48 | $10.38 |
Hypothetical | |||
(5% annual return before expenses) | $1,000.00 | $1,014.35 | $10.73 |
* | Expenses are equal to the annualized expense ratio of 1.43% for Class A shares and 2.13% for |
Class B shares, multiplied by the average account value over the period, multiplied by 183/366 | |
(to reflect the one-half year period). Expenses paid during the period are net of expenses waived. |
Portfolio Composition
BY SECTOR
Portfolio holdings and allocations are subject to change. Percentages are as of September 30, 2012, |
and are based on the total market value of investments. |
117 |
Cumulative Performance Information (unaudited)
SPECIAL SITUATIONS FUND
Comparison of change in value of $10,000 investment in the First Investors Special Situations Fund (Class A shares) and the Russell 2000 Index.
The graph compares a $10,000 investment in the First Investors Special Situations Fund (Class A shares) beginning 9/30/02 with a theoretical investment in the Russell 2000 Index (the “Index”). The Index is an unmanaged Index that measures the performance of the small-cap segment of the U.S. equity universe. The Index is a subset of the Russell 3000 Index representing approximately 10% of the total market capitalization of that index. The Index includes approximately 2000 of the smallest securities in the Russell 3000 Index based on a combination of their market cap and current index membership. It is not possible to invest directly in this Index. In addition, the Index does not reflect fees and expenses associated with the active management of a mutual fund portfolio. For purposes of the graph and the accompanying table, unless otherwise indicated, it has been assumed that the maximum sales charge was deducted from the initial $10,000 investment in the Fund and all dividends and distributions were reinvested. Class B shares performance may be greater than or less than that shown in the line graph above for Class A shares based on differences in the sales loads and fees paid by shareholders investing in the different classes.
* Average Annual Total Return figures (for the periods ended 9/30/12) include the reinvestment of all dividends and distributions. “N.A.V. Only” returns are calculated without sales charges. The Class A “S.E.C. Standardized” returns shown are based on the maximum sales charge of 5.75%. The Class B “S.E.C. Standardized” returns are adjusted for the applicable deferred sales charge (maximum of 4% in the first year). During the periods shown, some of the expenses of the Fund were waived or assumed. If such expenses had been paid by the Fund, the Class A “S.E.C. Standardized” Average Annual Total Return for One Year, Five Years and Ten Years would have been 14.09%, 2.11% and 8.64%, respectively. The Class B “S.E.C. Standardized” Average Annual Total Return for One Year, Five Years and Ten Years would have been 16.22%, 2.24% and 8.66%, respectively. Results represent past performance and do not indicate future results. The graph and the returns shown do not reflect the deduction of taxes that a shareholder would pay on distributions or the redemption of fund shares. Investment return and principal value of an investment will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than the original cost. Index figures are from Frank Russell and Company and all other figures are from First Investors Management Company, Inc.
118 |
Portfolio of Investments
SPECIAL SITUATIONS FUND
September 30, 2012
Shares | Security | Value | ||
COMMON STOCKS—92.6% | ||||
Consumer Discretionary—14.4% | ||||
179,104 | American Eagle Outfitters, Inc. | $ 3,775,512 | ||
193,650 | * | Deckers Outdoor Corporation | 7,095,336 | |
457,075 | * | Express, Inc. | 6,773,851 | |
96,800 | Foot Locker, Inc. | 3,436,400 | ||
149,575 | * | Iconix Brand Group, Inc. | 2,728,248 | |
134,975 | Men’s Wearhouse, Inc. | 4,647,189 | ||
68,125 | PVH Corporation | 6,384,675 | ||
709,950 | Regal Entertainment Group – Class “A” | 9,988,997 | ||
316,375 | * | WMS Industries, Inc. | 5,182,223 | |
50,012,431 | ||||
Consumer Staples—2.1% | ||||
78,925 | Cal-Maine Foods, Inc. | 3,546,889 | ||
256,967 | * | Dole Food Company, Inc. | 3,605,247 | |
7,152,136 | ||||
Energy—6.9% | ||||
194,200 | * | Denbury Resources, Inc. | 3,138,272 | |
311,516 | * | Matrix Service Company | 3,292,724 | |
204,775 | * | Midstates Petroleum Company, Inc. | 1,771,304 | |
636,000 | * | PetroQuest Energy, Inc. | 4,267,560 | |
47,300 | * | Plains Exploration & Production Company | 1,772,331 | |
150,300 | * | Resolute Energy Corporation | 1,333,161 | |
95,550 | Sunoco, Inc. | 4,474,607 | ||
85,200 | * | Whiting Petroleum Corporation | 4,036,776 | |
24,086,735 | ||||
Financials—19.1% | ||||
16,612 | * | Alleghany Corporation | 5,730,143 | |
135,600 | American Financial Group, Inc. | 5,139,240 | ||
1,285,100 | Anworth Mortgage Asset Corporation (REIT) | 8,738,680 | ||
201,900 | Aspen Insurance Holdings, Ltd. | 6,155,931 | ||
503,447 | Capitol Federal Financial, Inc. | 6,021,226 | ||
217,675 | * | EZCORP, Inc. – Class “A” | 4,991,288 | |
3,600 | * | Markel Corporation | 1,650,564 | |
1,032,100 | MFA Financial, Inc. (REIT) | 8,772,850 |
119 |
Portfolio of Investments (continued)
SPECIAL SITUATIONS FUND
September 30, 2012
Shares | Security | Value | ||
Financials (continued) | ||||
139,800 | Mid-America Apartment Communities, Inc. (REIT) | $ 9,130,338 | ||
297,800 | Montpelier Re Holdings, Ltd. | 6,590,314 | ||
177,775 | * | PHH Corporation | 3,617,721 | |
66,538,295 | ||||
Health Care—10.8% | ||||
151,275 | * | Endo Health Solutions, Inc. | 4,798,443 | |
109,050 | * | Life Technologies Corporation | 5,330,364 | |
184,763 | * | Magellan Health Services, Inc. | 9,535,618 | |
103,675 | * | MEDNAX, Inc. | 7,718,604 | |
250,036 | * | Myriad Genetics, Inc. | 6,748,472 | |
113,400 | PerkinElmer, Inc. | 3,341,898 | ||
37,473,399 | ||||
Industrials—5.3% | ||||
145,400 | Applied Industrial Technologies, Inc. | 6,023,922 | ||
178,225 | EMCOR Group, Inc. | 5,086,541 | ||
48,000 | Kennametal, Inc. | 1,779,840 | ||
33,750 | Precision Castparts Corporation | 5,512,725 | ||
18,403,028 | ||||
Information Technology—20.8% | ||||
248,400 | * | Avnet, Inc. | 7,225,956 | |
340,925 | * | Compuware Corporation | 3,378,567 | |
598,125 | * | Comverse Technology, Inc. | 3,678,469 | |
535,575 | Convergys Corporation | 8,392,460 | ||
86,600 | * | Cymer, Inc. | 4,421,796 | |
112,025 | Cypress Semiconductor Corporation | 1,200,908 | ||
648,300 | * | Emulex Corporation | 4,674,243 | |
76,075 | IAC/InterActiveCorp | 3,960,464 | ||
150,600 | j2 Global, Inc. | 4,942,692 | ||
619,849 | * | Kulicke and Soffa Industries, Inc. | 6,446,430 | |
247,375 | * | Microsemi Corporation | 4,964,816 | |
772,575 | * | QLogic Corporation | 8,822,807 | |
635,340 | * | TriQuint Semiconductor, Inc. | 3,208,467 | |
725,400 | * | Vishay Intertechnology, Inc. | 7,130,682 | |
72,448,757 |
120 |
Shares or | |||||||
Principal | |||||||
Amount | Security | Value | |||||
Materials—12.1% | |||||||
103,000 | AptarGroup, Inc. | $ 5,326,130 | |||||
297,850 | * | Chemtura Corporation | 5,128,977 | ||||
64,924 | * | Innospec, Inc. | 2,202,222 | ||||
248,600 | Olin Corporation | 5,402,078 | |||||
46,500 | Royal Gold, Inc. | 4,643,490 | |||||
88,600 | Schnitzer Steel Industries, Inc. – Class “A” | 2,494,090 | |||||
136,875 | Sensient Technologies Corporation | 5,031,525 | |||||
155,400 | Tronox, Ltd. – Class “A” | 3,519,810 | |||||
115,165 | Westlake Chemical Corporation | 8,413,955 | |||||
42,162,277 | |||||||
Telecommunication Services—1.1% | |||||||
420,000 | * | Premiere Global Services, Inc. | 3,927,000 | ||||
Total Value of Common Stocks (cost $255,503,421) | 322,204,058 | ||||||
SHORT-TERM U.S. GOVERNMENT | |||||||
OBLIGATIONS—7.9% | |||||||
U.S. Treasury Bills: | |||||||
$ 5,500M | 0.08%, 10/4/2012 | 5,499,964 | |||||
13,000M | 0.067%, 10/18/2012 | 12,999,589 | |||||
1,000M | 0.07%, 11/29/2012 | 999,885 | |||||
1,000M | 0.086%, 11/29/2012 | 999,859 | |||||
7,000M | 0.05%, 12/13/2012 | 6,999,290 | |||||
Total Value of Short-Term U.S. Government Obligations (cost $27,498,587) | 27,498,587 | ||||||
Total Value of Investments (cost $283,002,008) | 100.5 | % | 349,702,645 | ||||
Excess of Liabilities Over Other Assets | (.5 | ) | (1,678,856) | ||||
Net Assets | 100.0 | % | $348,023,789 |
* | Non-income producing |
Summary of Abbreviations: | |
REIT Real Estate Investment Trust |
121 |
Portfolio of Investments (continued)
SPECIAL SITUATIONS FUND
September 30, 2012
Accounting Standards Codification (“ASC”) 820 established a three-tier hierarchy of inputs to establish a classification of fair value measurements for disclosure purposes. The three-tier hierarchy of inputs is summarized in the three broad Levels listed below:
Level 1 — Unadjusted quoted prices in active markets for identical securities that the Fund has the ability to access. |
Level 2 — Observable inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. These inputs may include quoted prices for the identical instrument on an inactive market, prices for similar instruments, interest rates, prepayment speeds, credit risk, yield curves, default rates and similar data. |
Level 3 — Unobservable inputs for the asset or liability, to the extent relevant observable inputs are not available, representing the Fund’s own assumption about the assumptions a market participant would use in valuing the asset or liability, and would be based on the best information available. |
The inputs methodology used for valuing securities are not necessarily an indication of the risk associated with investing in those securities.
The following is a summary, by category of Level, of inputs used to value the Fund’s investments as of September 30, 2012:
Level 1 | Level 2 | Level 3 | Total | |||||||||
Common Stocks | $ | 322,204,058 | $ | — | $ | — | $ | 322,204,058 | ||||
Short-Term U.S. Government | ||||||||||||
Obligations | — | 27,498,587 | — | 27,498,587 | ||||||||
Total Investments in Securities* | $ | 322,204,058 | $ | 27,498,587 | $ | — | $ | 349,702,645 |
* | The Portfolio of Investments provides information on the industry categorization for the portfolio. |
There were no transfers into or from Level 1 or Level 2 by the Fund during the year ended | |
September 30, 2012. Transfers, if any, between Levels are recognized at the end of the | |
reporting period. |
122 | See notes to financial statements |
Portfolio Manager’s Letter
INTERNATIONAL FUND
Dear Investor:
This is the annual report for the First Investors International Fund for the fiscal year ended September 30, 2012. During the period, the Fund’s return on a net asset value basis was 24.3% for Class A shares and 23.5% for Class B shares, including dividends of 15.7 cents per share on Class A shares and 14.0 cents per share on Class B shares.
While markets provided decent performance late in the reporting period, little has changed. The Eurozone continues to have significant structural issues that will take some time to resolve. Toward that end, the European Central Bank (“ECB”) has begun aggressively purchasing short-term sovereign debt through its Outright Monetary Transaction (“OMT”) program. By opening the monetary tap, the ECB has lifted the mood in Eurozone financial markets.
Emerging countries continued to experience slower economic growth during the reporting period. India’s central government liberalized its foreign direct investment (“FDI”) policy. If Indian states adopt the new standards, multinational retailers are likely to bring infrastructure improvements and global best practices to India. Economic policy in China is likely to remain as it is until the new members of the Communist Party’s Politburo Standing Committee are named in November. In Brazil, the government has taken headline-grabbing measures to reduce the cost of doing business in the country including lowering bank profit margins on loans and cutting the price of electricity. After reviewing the scope and abruptness of the government’s changes, we decided it was prudent to reduce our exposure to the government-regulated companies most exposed to Brazilian concessions.
Despite monetary easing and improved sentiment, much remains unresolved. Economic growth in the U.S. has improved somewhat; however, the country has not addressed issues related to the impending fiscal cliff. At the end of 2012, the Bush tax cuts, stimulus payroll tax break, and emergency unemployment benefits will expire, while cuts to defense and health care spending take effect. If no action is taken, the effect on economic growth in the U.S. and the rest of the world could be significant.
Stock selection in the consumer discretionary and consumer staples sectors contributed to relative performance during the year. Our utilities exposure was the only detractor on a sector level, with both stock selection and an underweight in the space negatively impacting Fund performance. Our underweight to telecommunications was also a detractor, but our selection of stocks within the sector more than offset this negative effect.
123 |
Portfolio Manager’s Letter (continued)
INTERNATIONAL FUND
Our underweight exposure to Australia contributed to performance during the fiscal year, as the country was one of the weaker performers within the benchmark. Our out-of-index allocation to Austrian companies was also beneficial to performance. Our underweight exposures to both the United States and the United Kingdom hurt performance versus the benchmark, as both countries outperformed the benchmark.
On an absolute basis, Philip Morris International, British American Tobacco, Novo Nordisk, Anheuser-Busch and Diageo were the top contributors to performance during the fiscal year; Nitori Holdings, Tesco, Admiral Group, Newcrest Mining and Sands China were the bottom contributors.
Relative to the benchmark, Philip Morris International, Novo Nordisk, Anheuser-Busch, Souza Cruz and Core Laboratories were the top performers during the year; Nitori Holdings, Tesco, Novartis, Admiral Group and Bayer* were the bottom performers.
Thank you for placing your trust in First Investors. As always, we appreciate the opportunity to serve your investment needs.
* | This company was not held in the portfolio. When a company that comprises a significant portion |
of the benchmark index makes a significant gain or loss during a quarter, it can affect the relative | |
performance of the portfolio significantly. |
124 |
Fund Expenses (unaudited)
INTERNATIONAL FUND
The examples below show the ongoing costs (in dollars) of investing in your Fund and will help you in comparing these costs with costs of other mutual funds. Please refer to page 2 for a detailed explanation of the information presented in these examples.
Beginning | Ending | ||
Account | Account | Expenses Paid | |
Value | Value | During Period | |
(4/1/12) | (9/30/12) | (4/1/12–9/30/12)* | |
Expense Example – Class A Shares | |||
Actual | $1,000.00 | $1,045.66 | $9.31 |
Hypothetical | |||
(5% annual return before expenses) | $1,000.00 | $1,015.90 | $9.17 |
Expense Example – Class B Shares | |||
Actual | $1,000.00 | $1,042.63 | $12.87 |
Hypothetical | |||
(5% annual return before expenses) | $1,000.00 | $1,012.40 | $12.68 |
* Expenses are equal to the annualized expense ratio of 1.82% for Class A shares and 2.52% for |
Class B shares, multiplied by the average account value over the period, multiplied by 183/366 |
(to reflect the one-half year period). |
Portfolio Composition
BY SECTOR
Portfolio holdings and allocations are subject to change. Percentages are as of September 30, 2012, |
and are based on the total market value of investments. |
125 |
Cumulative Performance Information (unaudited)
INTERNATIONAL FUND
Comparison of change in value of $10,000 investment in the First Investors International Fund (Class A shares), the Morgan Stanley Capital International (“MSCI”) EAFE Index (Gross) and the Morgan Stanley Capital International (“MSCI”) EAFE Index (Net).
The graph compares a $10,000 investment in the First Investors International Fund (Class A shares) beginning 6/27/06 (inception date) with theoretical investments in the MSCI EAFE Index (Gross) and the MSCI EAFE Index (Net) (the “Indices”). The Indices are free float-adjusted market capitalization indices that measure developed foreign market equity performance, excluding the U.S. and Canada. The Indices consist of 22 developed market country indices. The MSCI EAFE Index (Gross) is calculated on a total-return basis with the maximum possible dividend reinvestment (before taxes). The MSCI EAFE Index (Net) is calculated on a total-return basis with the minimum possible dividend reinvestment (after taxes). The Indices are unmanaged and it is not possible to invest directly in these Indices. In addition, the Indices do not reflect fees and expenses associated with the active management of a mutual fund portfolio. For purposes of the graph and the accompanying table, unless otherwise indicated, it has been assumed that the maximum sales charge was deducted from the initial $10,000 investment in the Fund and all dividends and distributions were reinvested. Class B shares performance may be greater than or less than that shown in the line graph above for Class A shares based on differences in sales loads and fees paid by shareholders investing in the different classes.
* Average Annual Total Return figures (for the periods ended 9/30/12) include the reinvestment of all dividends and distributions. “N.A.V. Only” returns are calculated without sales charges. The Class A “S.E.C. Standardized” returns shown are based on the maximum sales charge of 5.75%. The Class B “S.E.C. Standardized” returns are adjusted for the applicable deferred sales charge (maximum of 4% in the first year). During the periods shown, some of the expenses of the Fund were waived or assumed. If such expenses had been paid by the Fund, the Class A “S.E.C. Standardized” Average Annual Total Return Since Inception would have been 2.43%. The Class B “S.E.C. Standardized” Average Annual Total Return Since Inception would have been 2.65%. Results represent past performance and do not indicate future results. The graph and the returns shown do not reflect the deduction of taxes that a shareholder would pay on distributions or the redemption of fund shares. Investment return and principal value of an investment will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than the original cost. Indices figures are from Morgan Stanley & Co., Inc. and all other figures are from First Investors Management Company, Inc.
126 |
Portfolio of Investments
INTERNATIONAL FUND
September 30, 2012
Shares | Security | Value | ||
COMMON STOCKS—97.7% | ||||
United Kingdom—27.4% | ||||
314,997 | * | Barratt Developments, PLC | $ 862,176 | |
206,308 | British American Tobacco, PLC | 10,592,412 | ||
87,991 | Bunzl, PLC | 1,575,759 | ||
157,253 | Diageo, PLC | 4,417,162 | ||
259,847 | Domino’s Pizza Group, PLC | 2,228,087 | ||
94,108 | Fresnillo, PLC | 2,815,930 | ||
50,138 | GlaxoSmithKline, PLC | 1,155,748 | ||
509,438 | HSBC Holdings, PLC | 4,716,211 | ||
88,057 | Imperial Tobacco Group, PLC | 3,259,106 | ||
140,621 | Persimmon, PLC | 1,722,367 | ||
185,018 | * | Rolls-Royce Holdings, PLC | 2,518,614 | |
116,838 | SABMiller, PLC | 5,131,838 | ||
154,149 | Standard Chartered, PLC | 3,484,887 | ||
334,994 | Tesco, PLC | 1,795,953 | ||
46,276,250 | ||||
India—13.8% | ||||
530,686 | HDFC Bank, Ltd. | 6,330,100 | ||
5,104 | HDFC Bank, Ltd. (ADR) | 191,808 | ||
77,960 | Hindustan Unilever, Ltd. | 806,796 | ||
536,313 | Housing Development Finance Corporation, Ltd. | 7,874,126 | ||
877,362 | ITC, Ltd. | 4,531,110 | ||
18,062 | Nestle India, Ltd. | 1,507,404 | ||
82,807 | Tata Consultancy Services, Ltd. | 2,034,498 | ||
23,275,842 | ||||
Switzerland—10.4% | ||||
22,800 | * | DKSH Holding, Ltd. | 1,425,303 | |
823 | * | Lindt & Spruengli AG | 2,606,137 | |
105,820 | Nestle SA – Registered | 6,677,087 | ||
812 | SGS SA – Registered | 1,669,274 | ||
427,196 | * | UBS AG – Registered | 5,204,718 | |
17,582,519 |
127 |
Portfolio of Investments (continued)
INTERNATIONAL FUND
September 30, 2012
Shares | Security | Value | ||
Canada—8.0% | ||||
64,933 | Enbridge, Inc. | $ 2,532,120 | ||
83,942 | Goldcorp, Inc. | 3,844,125 | ||
17,700 | TransCanada Corporation | 804,276 | ||
114,699 | * | Valeant Pharmaceuticals International, Inc. | 6,332,079 | |
13,512,600 | ||||
Netherlands—7.6% | ||||
29,226 | Core Laboratories NV | 3,550,375 | ||
62,852 | Royal Dutch Shell, PLC – Class “A” | 2,175,118 | ||
203,832 | Unilever NV – CVA | 7,219,214 | ||
12,944,707 | ||||
United States—5.7% | ||||
106,836 | Philip Morris International, Inc. | 9,608,830 | ||
France—5.1% | ||||
37,434 | Bureau Veritas SA | 3,848,868 | ||
24,251 | Essilor International SA | 2,273,473 | ||
22,674 | Pernod Ricard SA | 2,546,851 | ||
8,669,192 | ||||
Denmark—3.4% | ||||
36,311 | Novo Nordisk A/S – Series “B” | 5,743,111 | ||
Australia—3.0% | ||||
110,660 | Coca-Cola Amatil, Ltd. | 1,560,423 | ||
113,904 | Newcrest Mining, Ltd. | 3,451,601 | ||
5,012,024 | ||||
Belgium—2.7% | ||||
53,742 | Anheuser-Busch Inbev NV | 4,574,949 | ||
Hong Kong—2.5% | ||||
417,036 | L’Occitane International SA | 1,102,665 | ||
820,241 | Sands China, Ltd. | 3,062,713 | ||
4,165,378 | ||||
Germany—2.4% | ||||
58,598 | SAP AG | 4,154,555 |
128 |
Shares or | |||||||
Principal | |||||||
Amount | Security | Value | |||||
Japan—2.0% | |||||||
17,100 | Daito Trust Construction Company, Ltd. | $ 1,725,386 | |||||
17,400 | Nitori Company, Ltd. | 1,621,465 | |||||
3,346,851 | |||||||
Ireland—1.7% | |||||||
39,170 | Paddy Power, PLC | 2,902,097 | |||||
China—1.0% | |||||||
15,260 | * | Baidu.com, Inc. (ADR) | 1,782,673 | ||||
Mexico—1.0% | |||||||
610,867 | Wal-Mart de Mexico SAB de CV | 1,722,291 | |||||
Total Value of Common Stocks (cost $125,117,684) | 165,273,869 | ||||||
PREFERRED STOCKS—.3% | |||||||
Brazil | |||||||
38,459 | AES Tiete SA (cost $321,113) | 424,816 | |||||
SHORT-TERM U.S. GOVERNMENT | |||||||
OBLIGATIONS—.6% | |||||||
$1,000M | U.S. Treasury Bills, 0.07%, 11/29/2012 (cost $999,885) | 999,885 | |||||
Total Value of Investments (cost $126,438,682) | 98.6 | % | 166,698,570 | ||||
Other Assets, Less Liabilities | 1.4 | 2,426,717 | |||||
Net Assets | 100.0 | % | $169,125,287 |
* | Non-income producing |
Summary of Abbreviations: | |
ADR American Depositary Receipts |
129 |
Portfolio of Investments (continued)
INTERNATIONAL FUND
September 30, 2012
Accounting Standards Codification (“ASC”) 820 established a three-tier hierarchy of inputs to establish a classification of fair value measurements for disclosure purposes. The three-tier hierarchy of inputs is summarized in the three broad Levels listed below:
Level 1 — Unadjusted quoted prices in active markets for identical securities that the Fund has the ability to access. |
Level 2 — Observable inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. These inputs may include quoted prices for the identical instrument on an inactive market, prices for similar instruments, interest rates, prepayment speeds, credit risk, yield curves, default rates and similar data. |
Level 3 — Unobservable inputs for the asset or liability, to the extent relevant observable inputs are not available, representing the Fund’s own assumption about the assumptions a market participant would use in valuing the asset or liability, and would be based on the best information available. |
The inputs methodology used for valuing securities are not necessarily an indication of the risk associated with investing in those securities.
The following is a summary, by category of Level, of inputs used to value the Fund’s investments as of September 30, 2012:
Level 1 | Level 2 | Level 3 | Total | |||||||||
Common Stocks | ||||||||||||
United Kingdom | $ | 46,276,250 | $ | — | $ | — | $ | 46,276,250 | ||||
India | 23,275,842 | — | — | 23,275,842 | ||||||||
Switzerland | 17,582,519 | — | — | 17,582,519 | ||||||||
Canada | 13,512,600 | — | — | 13,512,600 | ||||||||
Netherlands | 12,944,707 | — | — | 12,944,707 | ||||||||
United States | 9,608,830 | — | — | 9,608,830 | ||||||||
France | 8,669,192 | — | — | 8,669,192 | ||||||||
Denmark | 5,743,111 | — | — | 5,743,111 | ||||||||
Australia | 5,012,024 | — | — | 5,012,024 | ||||||||
Belgium | 4,574,949 | — | — | 4,574,949 | ||||||||
Hong Kong | 4,165,378 | — | — | 4,165,378 | ||||||||
Germany | 4,154,555 | — | — | 4,154,555 | ||||||||
Japan | 3,346,851 | — | — | 3,346,851 | ||||||||
Ireland | 2,902,097 | — | — | 2,902,097 | ||||||||
China | 1,782,673 | — | — | 1,782,673 | ||||||||
Mexico | 1,722,291 | — | — | 1,722,291 | ||||||||
Preferred Stocks | ||||||||||||
Brazil | 424,816 | — | — | 424,816 | ||||||||
Short-Term U.S. Government | ||||||||||||
Obligations | — | 999,885 | — | 999,885 | ||||||||
Total Investments in Securities | $ | 165,698,685 | $ | 999,885 | $ | — | $ | 166,698,570 |
130 |
During the year ended September 30, 2012, there were no transfers between Level 1 investments |
and Level 2 investments that had a material impact to the Fund. This does not include transfers |
between Level 1 investments and Level 2 investments due to the Fund utilizing international fair |
value pricing during the year. Transfers, if any, between Levels are recognized at the end of the |
reporting period. |
See notes to financial statements | 131 |
Statements of Assets and Liabilities
FIRST INVESTORS INCOME FUNDS
September 30, 2012
INTERNATIONAL | |||||||||||||||
CASH | INVESTMENT | OPPORTUNITIES | |||||||||||||
MANAGEMENT | GOVERNMENT | GRADE | BOND | INCOME | |||||||||||
Assets | |||||||||||||||
Investments in securities: | |||||||||||||||
At identified cost | $ | 134,379,302 | $ | 368,405,735 | $ | 474,606,522 | $ | 16,251,312 | $ | 563,040,076 | |||||
At value (Note 1A) | $ | 134,379,302 | $ | 386,186,095 | $ | 530,616,114 | $ | 16,598,551 | $ | 587,375,347 | |||||
Cash | 1,732,705 | 1,167,541 | 2,427,786 | 1,863,276 | 21,500,887 | ||||||||||
Receivables: | |||||||||||||||
Investment securities sold | — | — | 1,002,510 | 536,309 | 7,157,861 | ||||||||||
Interest | 7,116 | 1,381,192 | 7,237,652 | 215,533 | 11,542,896 | ||||||||||
Shares sold | — | 612,570 | 1,027,019 | 762,121 | 468,427 | ||||||||||
Unrealized appreciation of foreign exchange | |||||||||||||||
contracts (Note 7) | — | — | — | 58,409 | — | ||||||||||
Deferred offering costs (Note 3) | — | — | — | 140,121 | — | ||||||||||
Other assets | 14,416 | 38,006 | 48,252 | — | 59,224 | ||||||||||
Total Assets | 136,133,539 | 389,385,404 | 542,359,333 | 20,174,320 | 628,104,642 | ||||||||||
Liabilities | |||||||||||||||
Payables: | |||||||||||||||
Investment securities purchased | — | — | 989,635 | 343,052 | 18,353,086 | ||||||||||
Shares redeemed | 130,610 | 584,097 | 942,185 | 2,000 | 751,260 | ||||||||||
Dividends payable | — | 70,107 | 137,192 | 1,089 | 464,462 | ||||||||||
Unrealized depreciation of foreign exchange | |||||||||||||||
contracts (Note 7) | — | — | — | 32,028 | — | ||||||||||
Accrued advisory fees | — | 174,805 | 239,681 | — | 348,333 | ||||||||||
Accrued shareholder servicing costs | 40,852 | 54,436 | 73,159 | 21,144 | 91,335 | ||||||||||
Due to advisor (Note 3) | — | — | — | 140,121 | — | ||||||||||
Accrued expenses | 38,764 | 44,857 | 45,702 | 71,392 | 67,364 | ||||||||||
Total Liabilities | 210,226 | 928,302 | 2,427,554 | 610,826 | 20,075,840 | ||||||||||
Net Assets | $ | 135,923,313 | $ | 388,457,102 | $ | 539,931,779 | $ | 19,563,494 | $ | 608,028,802 | |||||
Net Assets Consist of: | |||||||||||||||
Capital paid in | $ | 135,923,313 | $ | 377,270,380 | $ | 507,342,331 | $ | 19,189,577 | $ | 766,717,875 | |||||
Undistributed net investment income (deficit) | — | 47,140 | (3,993,608 | ) | (4,166 | ) | (1,100,372 | ) | |||||||
Accumulated net realized gain (loss) on investments and | |||||||||||||||
foreign currency transactions | — | (6,640,778 | ) | (19,426,536 | ) | 2,638 | (181,923,972 | ) | |||||||
Net unrealized appreciation in value of investments and | |||||||||||||||
foreign currency transactions | — | 17,780,360 | 56,009,592 | 375,445 | 24,335,271 | ||||||||||
Total | $ | 135,923,313 | $ | 388,457,102 | $ | 539,931,779 | $ | 19,563,494 | $ | 608,028,802 | |||||
Net Assets: | |||||||||||||||
Class A | $ | 135,027,594 | $ | 382,063,960 | $ | 531,896,265 | $ | 19,563,494 | $ | 602,370,138 | |||||
Class B | $ | 895,719 | $ | 6,393,142 | $ | 8,035,514 | N/A | $ | 5,658,664 | ||||||
Shares outstanding (Note 8): | |||||||||||||||
Class A | 135,027,594 | 33,159,556 | 51,787,277 | 1,913,800 | 231,810,161 | ||||||||||
Class B | 895,719 | 555,678 | 783,091 | N/A | 2,178,134 | ||||||||||
Net asset value and redemption price | |||||||||||||||
per share – Class A | $ | 1.00 | # | $ | 11.52 | $ | 10.27 | $ | 10.22 | $ | 2.60 | ||||
Maximum offering price per share – Class A | |||||||||||||||
(Net asset value/.9425)* | N/A | $ | 12.22 | $ | 10.90 | $ | 10.84 | $ | 2.76 | ||||||
Net asset value and offering price per share – | |||||||||||||||
Class B (Note 8) | $ | 1.00 | $ | 11.51 | $ | 10.26 | N/A | $ | 2.60 |
# Also maximum offering price per share.
* On purchases of $100,000 or more, the sales charge is reduced.
132 | See notes to financial statements | 133 |
Statements of Assets and Liabilities
FIRST INVESTORS EQUITY FUNDS
September 30, 2012
TOTAL | EQUITY | GROWTH & | ||||||||||
RETURN | INCOME | INCOME | GLOBAL | |||||||||
Assets | ||||||||||||
Investments in securities: | ||||||||||||
At identified cost | $ | 439,677,517 | $ | 329,335,154 | $ | 944,054,832 | $ | 234,685,763 | ||||
At value (Note 1A) | $ | 540,294,362 | $ | 398,912,107 | $ | 1,247,959,129 | $ | 286,336,520 | ||||
Cash | 1,513,171 | 1,936,421 | 2,350,650 | 1,948,938 | ||||||||
Receivables: | ||||||||||||
Investment securities sold | 1,266,531 | — | 5,378,345 | 1,807,656 | ||||||||
Dividends and interest | 2,688,586 | 692,445 | 1,306,175 | 413,973 | ||||||||
Shares sold | 1,024,099 | 376,236 | 1,357,618 | 183,984 | ||||||||
Other assets | 37,731 | 33,473 | 101,059 | 26,233 | ||||||||
Total Assets | 546,824,480 | 401,950,682 | 1,258,452,976 | 290,717,304 | ||||||||
Liabilities | ||||||||||||
Payables: | ||||||||||||
Investment securities purchased | 2,910,793 | 1,844,894 | 2,410,878 | 2,094,272 | ||||||||
Shares redeemed | 986,978 | 770,392 | 1,989,579 | 550,542 | ||||||||
Dividends payable | 29,768 | 16,660 | 14,594 | — | ||||||||
Accrued advisory fees | 325,079 | 242,972 | 718,990 | 224,813 | ||||||||
Accrued shareholder servicing costs | 101,376 | 75,866 | 251,461 | 65,956 | ||||||||
Accrued expenses | 48,288 | 59,137 | 77,373 | 65,478 | ||||||||
Total Liabilities | 4,402,282 | 3,009,921 | 5,462,875 | 3,001,061 | ||||||||
Net Assets | $ | 542,422,198 | $ | 398,940,761 | $ | 1,252,990,101 | $ | 287,716,243 | ||||
Net Assets Consist of: | ||||||||||||
Capital paid in | $ | 437,677,354 | $ | 346,862,732 | $ | 948,285,719 | $ | 267,882,577 | ||||
Undistributed net investment income (deficit) | (361,113 | ) | 2,492,483 | 7,041,552 | 662,542 | |||||||
Accumulated net realized gain (loss) on investments | ||||||||||||
and foreign currency transactions | 4,489,112 | (19,991,407 | ) | (6,241,467 | ) | (32,444,155 | ) | |||||
Net unrealized appreciation in value of investments | ||||||||||||
and foreign currency transactions | 100,616,845 | 69,576,953 | 303,904,297 | 51,615,279 | ||||||||
Total | $ | 542,422,198 | $ | 398,940,761 | $ | 1,252,990,101 | $ | 287,716,243 | ||||
Net Assets: | ||||||||||||
Class A | $ | 531,550,691 | $ | 392,001,326 | $ | 1,225,684,320 | $ | 283,328,310 | ||||
Class B | $ | 10,871,507 | $ | 6,939,435 | $ | 27,305,781 | $ | 4,387,933 | ||||
Shares outstanding (Note 8): | ||||||||||||
Class A | 31,621,449 | 51,096,265 | 73,588,478 | 41,731,735 | ||||||||
Class B | 657,512 | 919,443 | 1,745,712 | 749,072 | ||||||||
Net asset value and redemption price per share – Class A | $ | 16.81 | $ | 7.67 | $ | 16.66 | $ | 6.79 | ||||
Maximum offering price per share – Class A | ||||||||||||
(Net asset value/.9425)* | $ | 17.84 | $ | 8.14 | $ | 17.68 | $ | 7.20 | ||||
Net asset value and offering price per share – Class B (Note 8) | $ | 16.53 | $ | 7.55 | $ | 15.64 | $ | 5.86 |
* On purchases of $100,000 or more, the sales charge is reduced.
134 | See notes to financial statements | 135 |
Statements of Assets and Liabilities
FIRST INVESTORS EQUITY FUNDS
September 30, 2012
SELECT | SPECIAL | |||||||||
GROWTH | OPPORTUNITY | SITUATIONS | INTERNATIONAL | |||||||
Assets | ||||||||||
Investments in securities: | ||||||||||
At identified cost | $ | 201,993,835 | $ | 406,677,444 | $ | 283,002,008 | $ | 126,438,682 | ||
At value (Note 1A) | $ | 275,997,392 | $ | 540,092,561 | $ | 349,702,645 | $ | 166,698,570 | ||
Cash | 1,195,986 | 2,561,684 | 1,108,296 | 1,906,881 | ||||||
Receivables: | ||||||||||
Investment securities sold | — | 5,239,184 | 5,132,362 | 111,437 | ||||||
Dividends and interest | 169,532 | 464,260 | 367,589 | 539,909 | ||||||
Shares sold | 236,461 | 611,693 | 285,322 | 386,397 | ||||||
Other assets | 19,441 | 41,347 | 27,909 | 12,917 | ||||||
Total Assets | 277,618,812 | 549,010,729 | 356,624,123 | 169,656,111 | ||||||
Liabilities | ||||||||||
Payables: | ||||||||||
Investment securities purchased | — | 4,654,912 | 7,682,959 | 66,730 | ||||||
Shares redeemed | 477,493 | 846,582 | 571,152 | 232,118 | ||||||
Accrued advisory fees | 170,049 | 329,449 | 232,336 | 134,586 | ||||||
Accrued shareholder servicing costs | 63,635 | 111,731 | 74,766 | 43,973 | ||||||
Accrued expenses | 35,540 | 52,630 | 39,121 | 53,417 | ||||||
Total Liabilities | 746,717 | 5,995,304 | 8,600,334 | 530,824 | ||||||
Net Assets | $ | 276,872,095 | $ | 543,015,425 | $ | 348,023,789 | $ | 169,125,287 | ||
Net Assets Consist of: | ||||||||||
Capital paid in | $ | 272,394,263 | $ | 390,227,264 | $ | 275,849,561 | $ | 162,826,156 | ||
Undistributed net investment income (deficit) | (658,645 | ) | 4,684,129 | 59,929 | (191,854 | ) | ||||
Accumulated net realized gain (loss) on investments | ||||||||||
and foreign currency transactions | (68,867,080 | ) | 14,688,915 | 5,413,662 | (33,765,352 | ) | ||||
Net unrealized appreciation in value of investments | ||||||||||
and foreign currency transactions | 74,003,557 | 133,415,117 | 66,700,637 | 40,256,337 | ||||||
Total | $ | 276,872,095 | $ | 543,015,425 | $ | 348,023,789 | $ | 169,125,287 | ||
Net Assets: | ||||||||||
Class A | $ | 271,018,801 | $ | 529,886,152 | $ | 342,938,943 | $ | 165,797,104 | ||
Class B | $ | 5,853,294 | $ | 13,129,273 | $ | 5,084,846 | $ | 3,328,183 | ||
Shares outstanding (Note 8): | ||||||||||
Class A | 33,971,585 | 18,042,537 | 14,056,245 | 14,189,307 | ||||||
Class B | 807,514 | 522,080 | 245,955 | 295,786 | ||||||
Net asset value and redemption price per share – Class A | $ | 7.98 | $ | 29.37 | $ | 24.40 | $ | 11.68 | ||
Maximum offering price per share – Class A | ||||||||||
(Net asset value/.9425)* | $ | 8.47 | $ | 31.16 | $ | 25.89 | $ | 12.39 | ||
Net asset value and offering price per share – Class B (Note 8) | $ | 7.25 | $ | 25.15 | $ | 20.67 | $ | 11.25 |
* On purchases of $100,000 or more, the sales charge is reduced.
136 | See notes to financial statements | 137 |
Statements of Operations
FIRST INVESTORS INCOME FUNDS
Year Ended September 30, 2012
INTERNATIONAL | |||||||||||||||
CASH | INVESTMENT | OPPORTUNITIES | |||||||||||||
MANAGEMENT | GOVERNMENT | GRADE | BOND | * | INCOME | ||||||||||
Investment Income | |||||||||||||||
Interest | $ | 165,531 | $ | 12,576,643 | $ | 22,604,759 | $ | 43,355 | (a) | $ | 41,225,829 | ||||
Expenses (Notes 1 and 3): | |||||||||||||||
Advisory fees | 701,276 | 2,455,962 | 3,228,173 | 13,586 | 4,138,173 | ||||||||||
Distribution plan expenses – Class A | — | 1,095,718 | 1,442,113 | 5,435 | 1,681,705 | ||||||||||
Distribution plan expenses – Class B | 9,032 | 68,760 | 86,184 | — | 65,581 | ||||||||||
Shareholder servicing costs | 555,733 | 670,355 | 887,704 | 37,029 | 1,124,757 | ||||||||||
Professional fees | 34,805 | 49,674 | 59,696 | 64,096 | 78,010 | ||||||||||
Registration fees | 61,000 | 56,800 | 54,500 | 14,025 | 47,000 | ||||||||||
Custodian fees | 24,111 | 45,125 | 35,109 | 20,000 | 42,312 | ||||||||||
Reports to shareholders | 14,453 | 13,232 | 16,392 | 1,500 | 28,142 | ||||||||||
Trustees’ fees | 7,126 | 18,527 | 24,164 | 24 | 28,081 | ||||||||||
Other expenses | 29,333 | 82,542 | 73,838 | 5,832 | 106,250 | ||||||||||
Total expenses | 1,436,869 | 4,556,695 | 5,907,873 | 161,527 | 7,340,011 | ||||||||||
Less: Expenses waived and/or assumed | (1,266,288 | ) | (409,327 | ) | (538,255 | ) | (138,127 | ) | (168,295 | ) | |||||
Expenses paid indirectly | (5,050 | ) | (2,572 | ) | (3,424 | ) | (17 | ) | (3,954 | ) | |||||
Net expenses | 165,531 | 4,144,796 | 5,366,194 | 23,383 | 7,167,762 | ||||||||||
Net investment income | — | 8,431,847 | 17,238,565 | 19,972 | 34,058,067 | ||||||||||
Realized and Unrealized Gain (Loss) on Investments and | |||||||||||||||
Foreign Currency Transactions (Note 2): | |||||||||||||||
Net realized gain (loss) on: | |||||||||||||||
Investments | — | 2,747,134 | 6,126,339 | 8,167 | 8,841,108 | ||||||||||
Foreign currency transactions | — | — | — | (9,640 | ) | — | |||||||||
Net realized gain (loss) on investments | |||||||||||||||
and foreign currency transactions | — | 2,747,134 | 6,126,339 | (1,473 | ) | 8,841,108 | |||||||||
Net unrealized appreciation (depreciation) of : | |||||||||||||||
Investments | — | (1,091,454 | ) | 29,262,123 | 349,064 | 49,079,702 | |||||||||
Foreign currency transactions | — | — | — | 26,381 | — | ||||||||||
Net realized appreciation (depreciation) on | |||||||||||||||
investments and foreign currency transactions | — | (1,091,454 | ) | 29,262,123 | 375,445 | 49,079,702 | |||||||||
Net gain on investments | — | 1,655,680 | 35,388,462 | 373,972 | 57,920,810 | ||||||||||
Net Increase in Net Assets Resulting from Operations | $ | — | $ | 10,087,527 | $ | 52,627,027 | $ | 393,944 | $ | 91,978,877 |
* From August 20, 2012 (commencement of operations) to September 30, 2012.
(a) Net of $2,085 foreign taxes withheld.
138 | See notes to financial statements | 139 |
Statements of Operations
FIRST INVESTORS EQUITY FUNDS
Year Ended September 30, 2012
TOTAL | EQUITY | GROWTH & | ||||||||||
RETURN | INCOME | INCOME | GLOBAL | |||||||||
Investment Income | ||||||||||||
Dividends | $ | 7,644,856 | (a) | $ | 11,636,421 | (b) | $ | 29,082,536 | (c) | $ | 5,903,206 | (d) |
Interest | 7,152,470 | 8,622 | 5,031 | 7,487 | ||||||||
Total income | 14,797,326 | 11,645,043 | 29,087,567 | 5,910,693 | ||||||||
Expenses (Notes 1 and 3): | ||||||||||||
Advisory fees | 3,509,194 | 2,809,485 | 7,728,859 | 2,690,342 | ||||||||
Distribution plan expenses – Class A | 1,389,756 | 1,110,298 | 3,222,300 | 819,218 | ||||||||
Distribution plan expenses – Class B | 118,785 | 76,069 | 269,171 | 45,731 | ||||||||
Shareholder servicing costs | 1,096,902 | 860,249 | 2,727,474 | 848,245 | ||||||||
Professional fees | 56,321 | 74,132 | 121,945 | 43,359 | ||||||||
Custodian fees | 21,799 | 14,359 | 35,891 | 146,006 | ||||||||
Registration fees | 53,500 | 48,652 | 50,535 | 44,000 | ||||||||
Reports to shareholders | 23,370 | 18,138 | 68,887 | 21,457 | ||||||||
Trustees’ fees | 23,244 | 18,736 | 55,317 | 13,849 | ||||||||
Other expenses | 79,641 | 56,347 | 123,073 | 93,105 | ||||||||
Total expenses | 6,372,512 | 5,086,465 | 14,403,452 | 4,765,312 | ||||||||
Less: Expenses waived | — | — | — | (52,709 | ) | |||||||
Expenses paid indirectly | (2,597 | ) | (2,033 | ) | (6,339 | ) | (1,487 | ) | ||||
Net expenses | 6,369,915 | 5,084,432 | 14,397,113 | 4,711,116 | ||||||||
Net investment income | 8,427,411 | 6,560,611 | 14,690,454 | 1,199,577 | ||||||||
Realized and Unrealized Gain (Loss) on Investments | ||||||||||||
and Foreign Currency Transactions (Note 2): | ||||||||||||
Net realized gain (loss) on: | ||||||||||||
Investments | 9,889,479 | (1,363,199 | ) | 25,391,281 | (1,744,941 | ) | ||||||
Foreign currency transactions | — | — | — | (122,451 | ) | |||||||
Net realized gain (loss) on investments and | ||||||||||||
foreign currency transactions | 9,889,479 | (1,363,199 | ) | 25,391,281 | (1,867,392 | ) | ||||||
Net unrealized appreciation of investments | 69,162,630 | 76,643,044 | 221,517,657 | 56,227,236 | ||||||||
Net gain on investments and foreign currency transactions | 79,052,109 | 75,279,845 | 246,908,938 | 54,359,844 | ||||||||
Net Increase in Net Assets Resulting from Operations | $ | 87,479,520 | $ | 81,840,456 | $ | 261,599,392 | $ | 55,559,421 |
(a) Net of $37,214 foreign taxes withheld.
(b) Net of $70,847 foreign taxes withheld.
(c) Net of $139,647 foreign taxes withheld.
(d) Net of $431,377 foreign taxes withheld.
140 | See notes to financial statements | 141 |
Statements of Operations | ||||||||||||
FIRST INVESTORS EQUITY FUNDS | ||||||||||||
Year Ended September 30, 2012 | ||||||||||||
SELECT | SPECIAL | |||||||||||
GROWTH | OPPORTUNITY | SITUATIONS | INTERNATIONAL | |||||||||
Investment Income | ||||||||||||
Dividends | $ | 2,698,993 | $ | 11,706,812 | (e) | $ | 4,956,018 | $ | 4,068,099 | (f) | ||
Interest | 1,027 | 8,928 | 8,722 | 1,032 | ||||||||
Total income | 2,700,020 | 11,715,740 | 4,964,740 | 4,069,131 | ||||||||
Expenses (Notes 1 and 3): | ||||||||||||
Advisory fees | 1,905,410 | 3,771,128 | 3,054,666 | 1,489,304 | ||||||||
Distribution plan expenses – Class A | 742,910 | 1,492,848 | 1,004,833 | 446,438 | ||||||||
Distribution plan expenses – Class B | 64,179 | 144,926 | 56,778 | 31,574 | ||||||||
Shareholder servicing costs | 776,269 | 1,364,543 | 934,008 | 537,638 | ||||||||
Professional fees | 38,844 | 65,457 | 45,920 | 25,659 | ||||||||
Custodian fees | 7,032 | 21,215 | 11,796 | 153,483 | ||||||||
Registration fees | 46,000 | 48,000 | 45,000 | 42,000 | ||||||||
Reports to shareholders | 17,108 | 28,104 | 19,994 | 12,095 | ||||||||
Trustees’ fees | 12,517 | 25,341 | 16,906 | 7,501 | ||||||||
Other expenses | 35,134 | 72,721 | 46,424 | 48,085 | ||||||||
Total expenses | 3,645,403 | 7,034,283 | 5,236,325 | 2,793,777 | ||||||||
Less: Expenses waived | — | — | (329,689 | ) | — | |||||||
Expenses paid indirectly | (1,382 | ) | (2,770 | ) | (1,832 | ) | (822 | ) | ||||
Net expenses | 3,644,021 | 7,031,513 | 4,904,804 | 2,792,955 | ||||||||
Net investment income (loss) | (944,001 | ) | 4,684,227 | 59,936 | 1,276,176 | |||||||
Realized and Unrealized Gain (Loss) on Investments | ||||||||||||
and Foreign Currency Transactions (Note 2 and 6): | ||||||||||||
Net realized gain (loss) on: | ||||||||||||
Investments | 6,874,740 | 14,703,906 | 8,831,864 | 11,419,410 | ||||||||
Foreign currency transactions | — | — | — | (203,745 | ) | |||||||
Net realized gain on investments | ||||||||||||
and foreign currency transactions | 6,874,740 | 14,703,906 | 8,831,864 | 11,215,665 | ||||||||
Net unrealized appreciation of investments | 50,284,387 | 96,340,656 | 52,595,947 | 19,972,563 | ||||||||
Net gain on investments and foreign currency transactions | 57,159,127 | 111,044,562 | 61,427,811 | 31,188,228 | ||||||||
Net Increase in Net Assets Resulting from Operations | $ | 56,215,126 | $ | 115,728,789 | $ | 61,487,747 | $ | 32,464,404 |
(e) Net of $27,740 foreign taxes withheld.
(f) Net of $329,423 foreign taxes withheld.
142 | See notes to financial statements | 143 |
Statements of Changes in Net Assets
FIRST INVESTORS INCOME FUNDS
INTERNATIONAL | |||||||||||||||||||||
OPPORTUNITIES | |||||||||||||||||||||
CASH MANAGEMENT | GOVERNMENT | INVESTMENT GRADE | BOND | ||||||||||||||||||
Year Ended September 30 | 2012 | 2011 | 2012 | 2011 | 2012 | 2011 | 2012 | ** | |||||||||||||
Increase (Decrease) in Net Assets From Operations | |||||||||||||||||||||
Net investment income | $ | — | $ | — | $ | 8,431,847 | $ | 10,612,115 | $ | 17,238,565 | $ | 16,808,393 | $ | 19,972 | |||||||
Net realized gain (loss) on investments | — | — | 2,747,134 | 1,522,798 | 6,126,339 | 7,307,577 | (1,473 | ) | |||||||||||||
Net unrealized appreciation (depreciation) of investments | — | — | (1,091,454 | ) | 6,710,421 | 29,262,123 | (13,459,178 | ) | 375,445 | ||||||||||||
Net increase in net assets resulting | |||||||||||||||||||||
from operations | — | — | 10,087,527 | 18,845,334 | 52,627,027 | 10,656,792 | 393,944 | ||||||||||||||
Dividends to Shareholders | |||||||||||||||||||||
Net investment income – Class A | — | — | (11,975,470 | ) | (11,889,734 | ) | (19,773,424 | ) | (18,383,242 | ) | (24,887 | ) | |||||||||
Net investment income – Class B | — | — | (180,107 | ) | (257,364 | ) | (300,972 | ) | (441,596 | ) | N/A | ||||||||||
Total dividends | — | — | (12,155,577 | ) | (12,147,098 | ) | (20,074,396 | ) | (18,824,838 | ) | (24,887 | ) | |||||||||
Share Transactions* | |||||||||||||||||||||
Class A: | |||||||||||||||||||||
Proceeds from shares sold | 138,654,875 | 164,395,254 | 80,703,297 | 68,559,494 | 110,514,618 | 94,375,542 | 23,507,430 | ||||||||||||||
Reinvestment of dividends | — | — | 11,116,817 | 10,900,205 | 18,092,318 | 16,675,925 | 23,798 | ||||||||||||||
Cost of shares redeemed | (151,798,288 | ) | (150,327,351 | ) | (54,554,693 | ) | (65,161,714 | ) | (65,812,986 | ) | (70,894,667 | ) | (4,336,791 | ) | |||||||
(13,143,413 | ) | 14,067,903 | 37,265,421 | 14,297,985 | 62,793,950 | 40,156,800 | 19,194,437 | ||||||||||||||
Class B: | |||||||||||||||||||||
Proceeds from shares sold | 256,141 | 1,185,395 | 1,106,976 | 848,476 | 995,491 | 1,049,176 | N/A | ||||||||||||||
Reinvestment of dividends | — | — | 170,501 | 242,286 | 286,900 | 413,953 | N/A | ||||||||||||||
Cost of shares redeemed | (879,445 | ) | (1,405,414 | ) | (2,129,656 | ) | (4,813,886 | ) | (3,767,140 | ) | (5,078,726 | ) | N/A | ||||||||
(623,304 | ) | (220,019 | ) | (852,179 | ) | (3,723,124 | ) | (2,484,749 | ) | (3,615,597 | ) | N/A | |||||||||
Net increase (decrease) from share transactions | (13,766,717 | ) | 13,847,884 | 36,413,242 | 10,574,861 | 60,309,201 | 36,541,203 | 19,194,437 | |||||||||||||
Net increase (decrease) in net assets | (13,766,717 | ) | 13,847,884 | 34,345,192 | 17,273,097 | 92,861,832 | 28,373,157 | 19,563,494 | |||||||||||||
Net Assets | |||||||||||||||||||||
Beginning of year | 149,690,030 | 135,842,146 | 354,111,910 | 336,838,813 | 447,069,947 | 418,696,790 | — | ||||||||||||||
End of year† | $ | 135,923,313 | $ | 149,690,030 | $ | 388,457,102 | $ | 354,111,910 | $ | 539,931,779 | $ | 447,069,947 | $ | 19,563,494 | |||||||
†Includes undistributed net investment income (deficit) of | $ | — | $ | — | $ | 47,140 | $ | 130,710 | $ | (3,993,608 | ) | $ | (2,390,751 | ) | $ | (4,166 | ) | ||||
* Shares Issued and Redeemed | |||||||||||||||||||||
Class A: | |||||||||||||||||||||
Sold | 138,654,875 | 164,395,254 | 6,982,798 | 5,996,389 | 11,192,864 | 9,757,041 | 2,339,380 | ||||||||||||||
Issued for dividends reinvested | — | — | 961,810 | 953,158 | 1,825,614 | 1,727,761 | 2,329 | ||||||||||||||
Redeemed | (151,798,288 | ) | (150,327,351 | ) | (4,720,673 | ) | (5,707,628 | ) | (6,656,099 | ) | (7,338,356 | ) | (427,909 | ) | |||||||
Net increase (decrease) in Class A shares outstanding | (13,143,413 | ) | 14,067,903 | 3,223,935 | 1,241,919 | 6,362,379 | 4,146,446 | 1,913,800 | |||||||||||||
Class B: | |||||||||||||||||||||
Sold | 256,141 | 1,185,395 | 95,856 | 74,270 | 100,837 | 108,687 | N/A | ||||||||||||||
Issued for dividends reinvested | — | — | 14,766 | 21,225 | 29,041 | 42,900 | N/A | ||||||||||||||
Redeemed | (879,445 | ) | (1,405,414 | ) | (184,393 | ) | (422,530 | ) | (383,906 | ) | (526,947 | ) | N/A | ||||||||
Net decrease in Class B shares outstanding | (623,304 | ) | (220,019 | ) | (73,771 | ) | (327,035 | ) | (254,028 | ) | (375,360 | ) | N/A |
** From August 20, 2012 (commencement of operations) to September 30, 2012.
144 | See notes to financial statements | 145 |
Statements of Changes in Net Assets
FIRST INVESTORS INCOME FUNDS
INCOME | |||||||
Year Ended September 30 | 2012 | 2011 | |||||
Increase (Decrease) in Net Assets From Operations | |||||||
Net investment income | $ | 34,058,067 | $ | 34,296,265 | |||
Net realized gain on investments | 8,841,108 | 18,967,534 | |||||
Net unrealized appreciation (depreciation) of investments | 49,079,702 | (47,914,443 | ) | ||||
Net increase in net assets resulting from operations | 91,978,877 | 5,349,356 | |||||
Dividends to Shareholders | |||||||
Net investment income – Class A | (35,292,367 | ) | (35,595,449 | ) | |||
Net investment income – Class B | (372,652 | ) | (587,469 | ) | |||
Total dividends | (35,665,019 | ) | (36,182,918 | ) | |||
Share Transactions * | |||||||
Class A: | |||||||
Proceeds from shares sold | 75,841,881 | 70,541,805 | |||||
Reinvestment of dividends | 29,568,927 | 29,464,018 | |||||
Cost of shares redeemed | (63,479,906 | ) | (69,241,263 | ) | |||
41,930,902 | 30,764,560 | ||||||
Class B: | |||||||
Proceeds from shares sold | 607,441 | 1,129,780 | |||||
Reinvestment of dividends | 313,420 | 503,110 | |||||
Cost of shares redeemed | (3,555,468 | ) | (4,543,242 | ) | |||
(2,634,607 | ) | (2,910,352 | ) | ||||
Net increase from share transactions | 39,296,295 | 27,854,208 | |||||
Net increase (decrease) in net assets | 95,610,153 | (2,979,354 | ) | ||||
Net Assets | |||||||
Beginning of year | 512,418,649 | 515,398,003 | |||||
End of year † | $ | 608,028,802 | $ | 512,418,649 | |||
†Includes undistributed net investment deficit of | $ | (1,100,372 | ) | $ | (445,932 | ) | |
*Shares Issued and Redeemed | |||||||
Class A: | |||||||
Sold | 30,109,659 | 28,002,951 | |||||
Issued for dividends reinvested | 11,711,571 | 11,732,192 | |||||
Redeemed | (25,241,060 | ) | (27,500,504 | ) | |||
Net increase in Class A shares outstanding | 16,580,170 | 12,234,639 | |||||
Class B: | |||||||
Sold | 241,388 | 449,656 | |||||
Issued for dividends reinvested | 124,477 | 200,033 | |||||
Redeemed | (1,418,398 | ) | (1,796,917 | ) | |||
Net decrease in Class B shares outstanding | (1,052,533 | ) | (1,147,228 | ) | |||
146 See notes to financial statements | |||||||
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147 |
Statements of Changes in Net Assets
FIRST INVESTORS EQUITY FUNDS
TOTAL RETURN | EQUITY INCOME | GROWTH & INCOME | GLOBAL | |||||||||||||||||||||
Year Ended September 30 | 2012 | 2011 | 2012 | 2011 | 2012 | 2011 | 2012 | 2011 | ||||||||||||||||
Increase (Decrease) in Net Assets From Operations | ||||||||||||||||||||||||
Net investment income | $ | 8,427,411 | $ | 8,081,316 | $ | 6,560,611 | $ | 5,872,166 | $ | 14,690,454 | $ | 9,547,071 | $ | 1,199,577 | $ | 488,653 | ||||||||
Net realized gain (loss) on investments | 9,889,479 | 5,756,364 | (1,363,199 | ) | 14,176,441 | 25,391,281 | 7,507,482 | (1,867,392 | ) | 24,362,516 | ||||||||||||||
Net unrealized appreciation (depreciation) of investments | 69,162,630 | (8,150,969 | ) | 76,643,044 | (29,680,263 | ) | 221,517,657 | (14,184,013 | ) | 56,227,236 | (51,321,420 | ) | ||||||||||||
Net increase (decrease) in net assets resulting | ||||||||||||||||||||||||
from operations | 87,479,520 | 5,686,711 | 81,840,456 | (9,631,656 | ) | 261,599,392 | 2,870,540 | 55,559,421 | (26,470,251 | ) | ||||||||||||||
Dividends to Shareholders | ||||||||||||||||||||||||
Net investment income – Class A | (8,802,366 | ) | (9,055,005 | ) | (4,992,799 | ) | (5,584,298 | ) | (9,050,725 | ) | (8,822,171 | ) | (682,596 | ) | — | |||||||||
Net investment income – Class B | (137,606 | ) | (254,014 | ) | (47,943 | ) | (90,698 | ) | (78,713 | ) | (174,740 | ) | (6,148 | ) | — | |||||||||
Total dividends | (8,939,972 | ) | (9,309,019 | ) | (5,040,742 | ) | (5,674,996 | ) | (9,129,438 | ) | (8,996,911 | ) | (688,744 | ) | — | |||||||||
Share Transactions * | ||||||||||||||||||||||||
Class A: | ||||||||||||||||||||||||
Proceeds from shares sold | 120,347,723 | 82,714,516 | 49,928,915 | 55,641,828 | 132,897,199 | 108,081,749 | 27,171,178 | 41,606,269 | ||||||||||||||||
Value of shares issued for acquisition** | — | — | — | — | 364,273,402 | — | — | — | ||||||||||||||||
Reinvestment of dividends | 8,680,216 | 8,912,640 | 4,929,086 | 5,497,125 | 8,979,608 | 8,746,010 | 673,450 | — | ||||||||||||||||
Cost of shares redeemed | (58,568,275 | ) | (63,908,289 | ) | (55,551,297 | ) | (63,128,719 | ) | (151,874,850 | ) | (110,917,461 | ) | (39,969,343 | ) | (43,114,751 | ) | ||||||||
70,459,664 | 27,718,867 | (693,296 | ) | (1,989,766 | ) | 354,275,359 | 5,910,298 | (12,124,715 | ) | (1,508,482 | ) | |||||||||||||
Class B: | ||||||||||||||||||||||||
Proceeds from shares sold | 1,403,987 | 1,698,131 | 448,256 | 866,008 | 2,527,142 | 2,291,827 | 403,551 | 807,681 | ||||||||||||||||
Value of shares issued for acquisition** | — | — | — | — | 9,713,143 | — | — | — | ||||||||||||||||
Reinvestment of dividends | 137,125 | 252,733 | 47,905 | 90,424 | 78,581 | 174,190 | 6,147 | — | ||||||||||||||||
Cost of shares redeemed | (5,798,871 | ) | (6,191,666 | ) | (3,159,724 | ) | (4,020,501 | ) | (11,271,586 | ) | (9,582,049 | ) | (1,449,049 | ) | (2,444,818 | ) | ||||||||
(4,257,759 | ) | (4,240,802 | ) | (2,663,563 | ) | (3,064,069 | ) | 1,047,280 | (7,116,032 | ) | (1,039,351 | ) | (1,637,137 | ) | ||||||||||
Net increase (decrease) from share transactions | 66,201,905 | 23,478,065 | (3,356,859 | ) | (5,053,835 | ) | 355,322,639 | (1,205,734 | ) | (13,164,066 | ) | (3,145,619 | ) | |||||||||||
Net increase (decrease) in net assets | 144,741,453 | 19,855,757 | 73,442,855 | (20,360,487 | ) | 607,792,593 | (7,332,105 | ) | 41,706,611 | (29,615,870 | ) | |||||||||||||
Net Assets | ||||||||||||||||||||||||
Beginning of year | 397,680,745 | 377,824,988 | 325,497,906 | 345,858,393 | 645,197,508 | 652,529,613 | 246,009,632 | 275,625,502 | ||||||||||||||||
End of year† | $ | 542,422,198 | $ | 397,680,745 | $ | 398,940,761 | $ | 325,497,906 | $ | 1,252,990,101 | $ | 645,197,508 | $ | 287,716,243 | $ | 246,009,632 | ||||||||
†Includes undistributed net investment income (deficit) of | $ | (361,113 | ) | $ | (570,667 | ) | $ | 2,492,483 | $ | 972,614 | $ | 7,041,552 | $ | 1,284,464 | $ | 662,542 | $ | 278,039 | ||||||
*Shares Issued and Redeemed | ||||||||||||||||||||||||
Class A: | ||||||||||||||||||||||||
Sold | 7,481,618 | 5,455,887 | 6,889,242 | 7,903,766 | 8,594,359 | 7,456,483 | 4,270,231 | 6,278,938 | ||||||||||||||||
Issued for acquisition** | — | — | — | — | 25,233,878 | — | — | — | ||||||||||||||||
Issued for dividends reinvested | 538,948 | 592,869 | 665,487 | 788,759 | 583,170 | 608,794 | 112,055 | — | ||||||||||||||||
Redeemed | (3,674,671 | ) | (4,209,975 | ) | (7,653,713 | ) | (8,962,624 | ) | (9,780,526 | ) | (7,642,811 | ) | (6,246,526 | ) | (6,511,395 | ) | ||||||||
Net increase (decrease) in Class A shares outstanding | 4,345,895 | 1,838,781 | (98,984 | ) | (270,099 | ) | 24,630,881 | 422,466 | (1,864,240 | ) | (232,457 | ) | ||||||||||||
Class B: | ||||||||||||||||||||||||
Sold | 89,506 | 114,158 | 63,260 | 124,008 | 174,925 | 168,173 | 72,915 | 138,235 | ||||||||||||||||
Issued for acquisition** | — | — | — | — | 715,868 | — | — | — | ||||||||||||||||
Issued for dividends reinvested | 8,728 | 17,068 | 6,579 | 13,113 | 5,836 | 12,913 | 1,180 | — | ||||||||||||||||
Redeemed | (374,806 | ) | (413,980 | ) | (452,496 | ) | (574,819 | ) | (785,200 | ) | (700,851 | ) | (264,395 | ) | (419,980 | ) | ||||||||
Net increase (decrease) in Class B shares outstanding | (276,572 | ) | (282,754 | ) | (382,657 | ) | (437,698 | ) | 111,429 | (519,765 | ) | (190,300 | ) | (281,745 | ) |
** See Note 12.
148 | See notes to financial statements | 149 |
Statements of Changes in Net Assets
FIRST INVESTORS EQUITY FUNDS
SELECT GROWTH | OPPORTUNITY | SPECIAL SITUATIONS | INTERNATIONAL | |||||||||||||||||||||
Year Ended September 30 | 2012 | 2011 | 2012 | 2011 | 2012 | 2011 | 2012 | 2011 | ||||||||||||||||
Increase (Decrease) in Net Assets From Operations | ||||||||||||||||||||||||
Net investment income (loss) | $ | (944,001 | ) | $ | (700,611 | ) | $ | 4,684,227 | $ | 2,940,696 | $ | 59,936 | $ | 387,081 | $ | 1,276,176 | $ | 1,672,991 | ||||||
Net realized gain (loss) on investments | ||||||||||||||||||||||||
and foreign currency transactions | 6,874,740 | 18,583,950 | 14,703,906 | 22,550,335 | 8,831,864 | 41,414,111 | 11,215,665 | (905,467 | ) | |||||||||||||||
Net unrealized appreciation (depreciation) of investments | ||||||||||||||||||||||||
and foreign currency transactions | 50,284,387 | (734,742 | ) | 96,340,656 | (13,185,793 | ) | 52,595,947 | (26,613,391 | ) | 19,972,563 | (7,249,200 | ) | ||||||||||||
Net increase (decrease) in net assets resulting | ||||||||||||||||||||||||
from operations | 56,215,126 | 17,148,597 | 115,728,789 | 12,305,238 | 61,487,747 | 15,187,801 | 32,464,404 | (6,481,676 | ) | |||||||||||||||
Distributions to Shareholders | ||||||||||||||||||||||||
Net investment income – Class A | — | — | (2,858,976 | ) | (785,813 | ) | (387,088 | ) | — | (2,142,019 | ) | (2,252,972 | ) | |||||||||||
Net investment income – Class A | — | — | (81,714 | ) | (7,098 | ) | — | — | (43,360 | ) | (56,124 | ) | ||||||||||||
Net realized gains – Class A | — | — | (15,298,237 | ) | — | (22,980,160 | ) | — | — | — | ||||||||||||||
Net realized gains – Class B | — | — | (575,152 | ) | — | (499,531 | ) | — | — | — | ||||||||||||||
Total distributions | — | — | (18,814,079 | ) | (792,911 | ) | (23,866,779 | ) | — | (2,185,379 | ) | (2,309,096 | ) | |||||||||||
Share Transactions * | ||||||||||||||||||||||||
Class A: | ||||||||||||||||||||||||
Proceeds from shares sold | 45,428,727 | 38,929,168 | 71,370,721 | 74,555,783 | 43,391,077 | 46,126,626 | 27,195,451 | 27,282,612 | ||||||||||||||||
Reinvestment of distributions | — | — | 18,082,699 | 781,830 | 23,250,649 | — | 2,131,981 | 2,243,435 | ||||||||||||||||
Cost of shares redeemed | (32,353,171 | ) | (35,495,706 | ) | (69,018,854 | ) | (72,360,775 | ) | (45,918,661 | ) | (49,594,767 | ) | (21,671,006 | ) | (22,029,107 | ) | ||||||||
13,075,556 | 3,433,462 | 20,434,566 | 2,976,838 | 20,723,065 | (3,468,141 | ) | 7,656,426 | 7,496,940 | ||||||||||||||||
Class B: | ||||||||||||||||||||||||
Proceeds from shares sold | 466,306 | 713,599 | 1,148,482 | 1,922,100 | 592,309 | 828,825 | 212,184 | 354,457 | ||||||||||||||||
Reinvestment of distributions | — | — | 655,289 | 7,087 | 499,190 | — | 43,332 | 56,091 | ||||||||||||||||
Cost of shares redeemed | (2,820,737 | ) | (3,339,365 | ) | (6,554,117 | ) | (8,248,484 | ) | (2,515,486 | ) | (3,095,317 | ) | (528,475 | ) | (792,183 | ) | ||||||||
(2,354,431 | ) | (2,625,766 | ) | (4,750,346 | ) | (6,319,297 | ) | (1,423,987 | ) | (2,266,492 | ) | (272,959 | ) | (381,635 | ) | |||||||||
Net increase (decrease) from share transactions | 10,721,125 | 807,696 | 15,684,220 | (3,342,459 | ) | 19,299,078 | (5,734,633 | ) | 7,383,467 | 7,115,305 | ||||||||||||||
Net increase (decrease) in net assets | 66,936,251 | 17,956,293 | 112,598,930 | 8,169,868 | 56,920,046 | 9,453,168 | 37,662,492 | (1,675,467 | ) | |||||||||||||||
Net Assets | ||||||||||||||||||||||||
Beginning of year | 209,935,844 | 191,979,551 | 430,416,495 | 422,246,627 | 291,103,743 | 281,650,575 | 131,462,795 | 133,138,262 | ||||||||||||||||
End of year† | $ | 276,872,095 | $ | 209,935,844 | $ | 543,015,425 | $ | 430,416,495 | $ | 348,023,789 | $ | 291,103,743 | $ | 169,125,287 | $ | 131,462,795 | ||||||||
†Includes undistributed net investment income (deficit) of | $ | (658,645 | ) | $ | — | $ | 4,684,129 | $ | 2,940,592 | $ | 59,929 | $ | 387,081 | $ | (191,854 | ) | $ | (315,243 | ) | |||||
*Shares Issued and Redeemed | ||||||||||||||||||||||||
Class A: | ||||||||||||||||||||||||
Sold | 6,092,740 | 5,633,735 | 2,548,556 | 2,707,241 | 1,789,639 | 1,891,798 | 2,533,422 | 2,623,806 | ||||||||||||||||
Issued for distributions reinvested | — | — | 698,983 | 28,744 | 1,025,613 | — | 211,506 | 218,445 | ||||||||||||||||
Redeemed | (4,326,019 | ) | (5,134,048 | ) | (2,461,213 | ) | (2,622,569 | ) | (1,890,583 | ) | (2,028,855 | ) | (2,016,988 | ) | (2,111,367 | ) | ||||||||
Net increase (decrease) in Class A shares outstanding | 1,766,721 | 499,687 | 786,326 | 113,416 | 924,669 | (137,057 | ) | 727,940 | 730,884 | |||||||||||||||
Class B: | ||||||||||||||||||||||||
Sold | 69,714 | 112,404 | 47,887 | 79,890 | 28,575 | 39,191 | 20,483 | 35,394 | ||||||||||||||||
Issued for distributions reinvested | — | — | 29,425 | 299 | 25,851 | — | 4,440 | 5,615 | ||||||||||||||||
Redeemed | (421,243 | ) | (532,420 | ) | (275,737 | ) | (344,735 | ) | (122,401 | ) | (147,439 | ) | (51,884 | ) | (78,179 | ) | ||||||||
Net decrease in Class B shares outstanding | (351,529 | ) | (420,016 | ) | (198,425 | ) | (264,546 | ) | (67,975 | ) | (108,248 | ) | (26,961 | ) | (37,170 | ) |
150 | See notes to financial statements | 151 |
Notes to Financial Statements
FIRST INVESTORS INCOME FUNDS
FIRST INVESTORS EQUITY FUNDS
September 30, 2012
1. Significant Accounting Policies—First Investors Income Funds (“Income Funds”) and First Investors Equity Funds (“Equity Funds”), each a Delaware statutory trust (each a “Trust”, collectively, “the Trusts”), are registered under the Investment Company Act of 1940 (the “1940 Act”) as open-end management investment companies and operate as series funds. The Income Funds issue shares of beneficial interest in the Cash Management Fund, Government Fund, Investment Grade Fund, International Opportunities Bond Fund and Fund For Income. The Equity Funds issue shares of beneficial interest in the Total Return Fund, Equity Income Fund (formerly Value Fund), Growth & Income Fund, Global Fund, Select Growth Fund, Opportunity Fund, Special Situations Fund and International Fund (each a “Fund”, collectively, “the Funds”). The Trusts account separately for the assets, liabilities and operations of each Fund. The objective of each Fund as of September 30, 2012 is as follows:
Cash Management Fund seeks to earn a high rate of current income consistent with the preservation of capital and maintenance of liquidity.
Government Fund seeks to achieve a significant level of current income which is consistent with security and liquidity of principal.
Investment Grade Fund seeks to generate a maximum level of income consistent with investment in investment grade debt securities.
International Opportunities Bond Fund seeks total return consisting of income and capital appreciation.
Fund For Income seeks high current income.
Total Return Fund seeks high, long-term total investment return consistent with moderate investment risk.
Equity Income Fund seeks total return.
Growth & Income Fund seeks long-term growth of capital and current income.
Global Fund seeks long-term capital growth.
Select Growth Fund seeks long-term growth of capital.
Opportunity Fund seeks long-term capital growth.
Special Situations Fund seeks long-term growth of capital.
International Fund primarily seeks long-term capital growth.
A. Security Valuation—Except as provided below, a security listed or traded on an exchange or the Nasdaq Stock Market is valued at its last sale price on the exchange
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or market where the security is principally traded, and lacking any sales, the security is valued at the mean between the closing bid and asked prices. Securities traded in the over-the-counter (“OTC”) market (including securities listed on exchanges whose primary market is believed to be OTC) are valued at the mean between the last bid and asked prices based on quotes furnished by a market maker for such securities. Securities may also be priced by pricing services approved by the Trusts’ Board of Trustees (the “Board”). The pricing services consider security type, rating, market condition and yield data as well as market quotations, prices provided by market makers and other available information in determining value. Short-term debt securities that mature in 60 days or less are valued at amortized cost.
The Funds monitor for significant events occurring prior to the close of trading on the New York Stock Exchange that could have a material impact on the value of any securities that are held by the Funds. Examples of such events include trading halts, natural disasters, political events and issuer-specific developments. If the Valuation Committee of First Investors Management Company, Inc. (“FIMCO”) decides that such events warrant using fair value estimates, it will take such events into consideration in determining the fair values of such securities. If market quotations or prices are not readily available or determined to be unreliable, the securities will be valued at fair value as determined in good faith pursuant to procedures adopted by the Board. The Funds also use a pricing service to fair value foreign equity securities in the event that fluctuation in U.S. securities markets exceed a predetermined level or if a foreign market is closed. For valuation purposes, where applicable, quotations of foreign securities in foreign currency are translated to U.S. dollar equivalents using the foreign exchange quotation in effect. As of September 30, 2012, Fund For Income held four securities that were fair valued by FIMCO’s Valuation Committee with an aggregate value of $2,775, representing 0% of the Fund’s net assets.
The Cash Management Fund values its portfolio securities in accordance with the amortized cost method of valuation under Rule 2a-7 of the 1940 Act. Amortized cost is an approximation of market value of an instrument, whereby the difference between its acquisition cost and market value at maturity is amortized on a straight-line basis over the remaining life of the instrument. The effect of changes in the market value of a security as a result of fluctuating interest rates is not taken into account and thus the amortized cost method of valuation may result in the value of a security being higher or lower than its actual market value.
In accordance with Accounting Standards Codification (“ASC”) 820 “Fair Value Measurements and Disclosures” (“ASC 820”), investments held by the Funds are carried at “fair value”. As defined by ASC 820, fair value is the price that a Fund would receive upon selling an investment in an orderly transaction to an independent buyer
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Notes to Financial Statements (continued)
FIRST INVESTORS INCOME FUNDS
FIRST INVESTORS EQUITY FUNDS
September 30, 2012
in the principal or most advantageous market for the investment under current market conditions. Various inputs are used in determining the value of the Funds’ investments.
In addition to defining fair value, ASC 820 established a three-tier hierarchy of inputs to establish a classification of fair value measurements for disclosure purposes. The three-tier hierarchy of inputs is summarized in the three broad Levels listed below:
Level 1 — Unadjusted quoted prices in active markets for identical securities that the Fund has the ability to access.
Level 2 — Observable inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. These inputs may include quoted prices for the identical instrument on an inactive market, prices for similar instruments, interest rates, prepayment speeds, credit risk, yield curves, default rates and similar data.
Level 3 — Unobservable inputs for the asset or liability, to the extent relevant observable inputs are not available, representing the Fund’s own assumption about the assumptions a market participant would use in valuing the asset or liability, and would be based on the best information available.
Equity securities traded on an exchange or the Nasdaq Stock Market are categorized in Level 1 of the fair value hierarchy to the extent that they are actively traded and valuation adjustments are not applied. Foreign securities that are fair valued in the event that fluctuations in U.S. securities markets exceed a predetermined level or if a foreign market is closed are categorized in Level 2. Corporate, sovereign and municipal bonds, asset backed, U.S. Government and U.S. Government Agency securities are categorized in Level 2 to the extent that the inputs are observable and timely, otherwise they would be categorized as Level 3. Short-term notes that are valued at amortized cost are categorized in Level 2. Foreign exchange contracts that are considered derivative instruments and are valued at the net unrealized appreciation or depreciation on the instruments are categorized in Level 2. Restricted securities and securities that are fair valued by the Valuation Committee may be categorized in either Level 2 or Level 3 of the fair value hierarchy depending on the relative significance of valuation inputs.
The aggregate value by input level, as of September 30, 2012, for each Fund’s investments is included at the end of each Fund’s portfolio of investments.
B. Federal Income Taxes—No provision has been made for federal income taxes on net income or capital gains since it is the policy of each Fund to continue to comply with the special provisions of the Internal Revenue Code applicable to investment companies, and to make sufficient distributions of income and capital gains (in excess
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of any available capital loss carryovers) to relieve it from all, or substantially all, such taxes. At September 30, 2012, capital loss carryovers were as follows:
Not Subject to | ||||||||||||||||||||||||||||||
Year Capital Loss Carryovers Expire | Expiration | |||||||||||||||||||||||||||||
Long | Short | |||||||||||||||||||||||||||||
Fund | Total | 2013 | 2014 | 2015 | 2016 | 2017 | 2018 | 2019 | Term | Term | ||||||||||||||||||||
Government | $ | 3,660,378 | $ | — | $ | 646,760 | $ | 1,909,473 | $ | 1,063,550 | $ | — | $ | — | $ | 40,595 | $ | — | $ | — | ||||||||||
Investment | ||||||||||||||||||||||||||||||
Grade | 19,426,536 | — | — | — | — | 19,426,536 | — | — | — | — | ||||||||||||||||||||
Fund For | ||||||||||||||||||||||||||||||
Income | 181,922,972 | 10,200,012 | 7,456,986 | 24,660,250 | 5,033,118 | 23,949,720 | 110,622,886 | — | — | — | ||||||||||||||||||||
Equity | ||||||||||||||||||||||||||||||
Income | 18,542,271 | — | — | — | — | 18,524,300 | — | — | 17,971 | — | ||||||||||||||||||||
Growth & | ||||||||||||||||||||||||||||||
Income* | 271,818 | — | — | — | — | — | — | 271,818 | — | — | ||||||||||||||||||||
Global | 26,490,247 | — | — | — | — | — | 24,434,029 | — | — | 2,056,218 | ||||||||||||||||||||
Select | ||||||||||||||||||||||||||||||
Growth | 68,076,131 | — | — | — | — | 23,869,023 | 44,207,108 | — | — | — | ||||||||||||||||||||
International | 33,194,023 | — | — | — | — | 10,097,507 | 20,905,274 | 2,191,242 | — | — |
As a result of the passage of the Regulated Investment Company Modernization Act of 2010 (“the Modernization Act of 2010”), losses incurred in this fiscal year and beyond retain their character as short-term or long-term, have no expiration date and are utilized prior to capital loss carryovers occurring prior to the enactment of the Modernization Act of 2010.
The Funds recognize the tax benefits of uncertain tax positions only where the position is “more likely than not” to be sustained assuming examination by tax authorities. Management has analyzed the Funds’ tax positions, and has concluded that no liability for unrecognized tax benefits should be recorded related to uncertain tax positions taken on returns filed for open tax years 2009 – 2011, or expected to be taken in the Funds’ 2012 tax returns. The Funds identify their major tax jurisdictions as U.S. Federal, New York State, New York City and foreign jurisdictions where the Funds make significant investments; however, the Funds are not aware of any tax position for which it is reasonably possible that the total amounts of unrecognized tax benefits will change materially in the next twelve months.
C. Distributions to Shareholders—Dividends from net investment income of the Government Fund, Investment Grade Fund, International Opportunities Bond Fund and Fund For Income are generally declared daily and paid monthly. The Cash Management Fund declares distributions, if any, daily and pays distributions monthly.
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Notes to Financial Statements (continued)
FIRST INVESTORS INCOME FUNDS
FIRST INVESTORS EQUITY FUNDS
September 30, 2012
Distributions are declared from the total of net investment income plus or minus all realized short-term gains and losses on investments. Dividends from net investment income, if any, of Total Return Fund, Equity Income Fund and Growth & Income Fund are declared and paid quarterly. Dividends from net investment income, if any, of Global Fund, Select Growth Fund, Opportunity Fund, Special Situations Fund and International Fund are declared and paid annually. Distributions from net realized capital gains, if any, of each of the Funds are normally declared and paid annually. Income dividends and capital gain distributions are determined in accordance with income tax regulations which may differ from accounting principles generally accepted in the United States of America. These differences are primarily due to differing treatments for capital loss carryforwards, deferral of wash sales losses, late loss deferrals, post-October capital losses, net operating losses and foreign currency transactions.
D. Expense Allocation—Expenses directly charged or attributable to a Fund are paid from the assets of that Fund. General expenses of the Trusts are allocated among and charged to the assets of each Fund on a fair and equitable basis, which may be based on the relative assets of each Fund or the nature of the services performed and relative applicability to each Fund.
E. Use of Estimates—The preparation of the financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenue and expense during the reporting period. Actual results could differ from those estimates.
F. Foreign Currency Translations—The accounting records of International Opportunities Bond Fund, Global Fund and International Fund are maintained in U.S. dollars. Portfolio securities and other assets and liabilities denominated in foreign currencies are translated to U.S. dollars at the date of valuation. Purchases and sales of investment securities, dividend income and certain expenses are translated to U.S. dollars at the rates of exchange prevailing on the respective dates of such transactions.
International Opportunities Bond Fund, Global Fund and International Fund do not isolate that portion of gains and losses on investments which is due to changes in foreign exchange rates from that which is due to changes in market prices of the investments. These changes are included with the net realized and unrealized gains and losses from investments.
Net realized and unrealized gains and losses on foreign currency transactions include gains and losses from the sales of foreign currency and gains and losses on accrued foreign dividends and related withholding taxes.
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G. Other—Security transactions are generally accounted for on the first business day following the date the securities are purchased or sold, except for financial reporting purposes, which is trade date. Investments in securities issued on a when-issued or delayed delivery basis are generally reflected in the assets of the Funds on the first business day following the date the securities are purchased and the Funds segregate assets for these transactions. Cost is determined and gains and losses are based on the identified cost basis for securities for both financial statement and federal income tax purposes. Dividend income is recorded on the ex-dividend date or for certain foreign dividends, as soon as the Fund becomes aware of the dividends. Interest income and estimated expenses are accrued daily. Bond discounts and premiums are accreted or amortized using the interest method. Withholding taxes on foreign dividends have been provided in accordance with the Funds’ understanding of the applicable country’s tax rules and rates. The Bank of New York Mellon, custodian for the Cash Management Fund, Government Fund, Investment Grade Fund and Fund For Income, may provide credits against custodian charges based on uninvested cash balance of the Funds. For the year ended September 30, 2012, the Funds did not receive any credits. Brown Brothers Harriman & Co. serves as custodian for the International Opportunities Bond Fund and each Fund in the Equity Funds. The Funds reduced expenses through brokerage service arrangements. For the year ended September 30, 2012, expenses were reduced by $15,017 for the Income Funds and by $19,262 for the Equity Funds under these arrangements.
2. Security Transactions—For the year ended September 30, 2012, purchases and sales of securities and long-term U.S. Government obligations (excluding U.S. Treasury bills, short-term securities and foreign currencies) were as follows:
Long-Term U.S. | ||||||||||||
Securities | Government Obligations | |||||||||||
Cost of | Proceeds | Cost of | Proceeds | |||||||||
Fund | Purchases | of Sales | Purchases | of Sales | ||||||||
Government | $170,052,801 | $132,455,918 | $ — | $ — | ||||||||
Investment Grade | 249,375,823 | 189,609,901 | — | — | ||||||||
International Opportunities Bond | 16,882,360 | 623,656 | — | — | ||||||||
Fund For Income | 334,564,937 | 296,715,044 | — | — | ||||||||
Total Return | 191,475,984 | 137,639,330 | 15,681,954 | 9,036,909 | ||||||||
Equity Income | 135,433,524 | 148,938,296 | — | — | ||||||||
Growth & Income | 236,390,620 | 236,282,841 | — | — | ||||||||
Global | 254,058,648 | 263,240,715 | — | — | ||||||||
Select Growth | 143,495,537 | 132,230,855 | — | — | ||||||||
Opportunity | 186,310,356 | 177,460,057 | — | — | ||||||||
Special Situations | 131,740,910 | 144,263,837 | — | — | ||||||||
International | 67,589,252 | 61,836,249 | — | — |
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Notes to Financial Statements (continued)
FIRST INVESTORS INCOME FUNDS
FIRST INVESTORS EQUITY FUNDS
September 30, 2012
At September 30, 2012, aggregate cost and net unrealized appreciation of securities for federal income tax purposes were as follows:
Gross | Gross | Net | ||||||||||
Aggregate | Unrealized | Unrealized | Unrealized | |||||||||
Fund | Cost | Appreciation | Depreciation | Appreciation | ||||||||
Government | $368,405,735 | $ 17,787,884 | $ 7,524 | $ 17,780,360 | ||||||||
Investment Grade | 478,690,101 | 52,147,726 | 221,713 | 51,926,013 | ||||||||
International | ||||||||||||
Opportunities Bond | 16,262,757 | 337,980 | 2,186 | 335,794 | ||||||||
Fund For Income | 565,298,850 | 31,938,128 | 9,861,631 | 22,076,497 | ||||||||
Total Return | 442,765,482 | 104,663,333 | 7,134,453 | 97,528,880 | ||||||||
Equity Income | 329,463,768 | 75,505,055 | 6,056,716 | 69,448,339 | ||||||||
Growth & Income | 949,496,987 | 333,023,974 | 34,561,831 | 298,462,143 | ||||||||
Global | 239,769,331 | 50,467,691 | 3,900,502 | 46,567,189 | ||||||||
Select Growth | 201,993,835 | 76,353,041 | 2,349,484 | 74,003,557 | ||||||||
Opportunity | 406,883,677 | 143,687,374 | 10,478,490 | 133,208,884 | ||||||||
Special Situations | 284,172,796 | 74,223,313 | 8,693,464 | 65,529,849 | ||||||||
International | 127,010,012 | 40,791,140 | 1,102,582 | 39,688,558 |
3. Advisory Fee and Other Transactions With Affiliates—Certain officers and trustees of the Trusts are officers and directors of the Trusts’ investment adviser, FIMCO, their underwriter, First Investors Corporation (“FIC”), and their transfer agent, Administrative Data Management Corp. (“ADM”). Trustees of the Trusts who are not officers or directors of FIMCO or its affiliates are remunerated by the Funds. For the year ended September 30, 2012, total trustees fees accrued by the Income Funds and Equity Funds amounted to $77,922 and $173,411, respectively.
The Investment Advisory Agreements provide as compensation to FIMCO for each Fund, an annual fee, payable monthly, at the following rates:
Cash Management Fund—.50% of the Fund’s average daily net assets. For the year ended September 30, 2012, FIMCO has voluntarily waived $531,462 in advisory fees to limit the Fund’s overall expense ratio to .60% on Class A shares and 1.35% on Class B shares. Also, FIMCO has voluntarily waived an additional $169,814 in advisory fees and assumed $515,250 of other Fund expenses to prevent a negative yield on the Fund’s shares.
Government and Investment Grade Funds—.66% on the first $500 million of each Fund’s average daily net assets, declining by .02% on each $500 million thereafter, down to .60% on average daily net assets over $1.5 billion. For the year ended
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September 30, 2012, FIMCO has voluntarily waived $409,327 in advisory fees on Government Fund and $538,255 in advisory fees on Investment Grade Fund to limit the advisory fee to .55% of each Fund’s average daily net assets.
International Opportunities Bond Fund and Fund For Income—.75% on the first $250 million of each Fund’s average daily net assets, .72% on the next $250 million, .69% on the next $250 million, .66% on the next $500 million, declining by .02% on each $500 million thereafter, down to .60% on average daily net assets over $2.25 billion. During the period August 20, 2012 (commencement of operations of the International Opportunities Bond Fund) to September 30, 2012, FIMCO has waived, pursuant to an expense limitation agreement, $13,586 in advisory fees and assumed $124,541 in other expenses to limit the Fund’s overall expense ratio to 1.30% (exclusive of certain expenses) on Class A shares. For the year ended September 30, 2012, FIMCO has voluntarily waived $168,295 in advisory fees on Fund For Income to limit the advisory fee to .70% of the Fund’s average daily net assets.
Total Return, Equity Income, Growth & Income, Select Growth, and Opportunity Funds—.75% on the first $300 million of each Fund’s average daily net assets, .72% on the next $200 million, .69% on the next $250 million, .66% on the next $500 million, declining by .02% on each $500 million thereafter, down to .60% on average daily net assets over $2.25 billion.
Special Situations Fund—1% on the first $200 million of the Fund’s average daily net assets, .75% on the next $300 million, .72% on the next $250 million, .69% on the next $250 million, .66% on the next $500 million, and .64% on average daily net assets over $1.5 billion. For the year ended September 30, 2012, FIMCO has voluntarily waived $329,689 in advisory fees to limit the advisory fee to .80% of the Fund’s average daily net assets.
Global Fund—During the period October 1, 2011 to May 18, 2012, the rate was .98% on the first $300 million of the Fund’s average daily net assets, .95% on the next $300 million, .92% on the next $400 million, .90% on the next $500 million and .88% on average daily net assets over $1.5 billion. Effective May 19, 2012, the rate was changed to .95% on the first $600 million, .92% on the next $400 million, .90% on the next $500 million and .88% on average daily net assets over $1.5 billion. During the period October 1, 2011 to May 18, 2012, FIMCO had voluntarily waived $52,709 in advisory fees on the Fund to limit the advisory fee to .95% of the Fund’s average daily net assets.
International Fund—.98% on the first $300 million of the Fund’s average daily net assets, .95% on the next $300 million, .92% on the next $400 million, .90% on the next $500 million and .88% on average daily net assets over $1.5 billion.
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Notes to Financial Statements (continued)
FIRST INVESTORS INCOME FUNDS
FIRST INVESTORS EQUITY FUNDS
September 30, 2012
For the year ended September 30, 2012, total advisory fees accrued to FIMCO by the Income Funds and Equity Funds were $10,537,170 and $26,958,388, respectively, of which $1,830,739 and $382,398, respectively, was voluntarily waived by FIMCO as noted above.
FIMCO has entered into an expense limitation agreement with the International Opportunities Bond Fund (“IOBF”) to limit IOBF’s total annual fund operating expenses (exclusive of interest expenses, taxes, brokerage commissions, acquired fund fees and expenses, dividend costs related to short sales, and extraordinary expenses, such as litigation expenses, if any) to 1.30% of the average daily net assets on the Class A shares. The agreement expires on January 31, 2014. For the period August 20, 2012 (commencement of operations) to September 30, 2012, FIMCO assumed $138,127, including $17,731 of offering expenses amortized in connection with the organization of IOBF, under the terms of the agreement. FIMCO and IOBF have agreed that any expenses of IOBF assumed by FIMCO pursuant to this agreement be repaid to FIMCO by IOBF within three years after the date the fee limitation and/or expense reimbursement has been made by FIMCO, provided that such repayment does not cause the expenses of IOBF’s Class A shares to exceed the foregoing limits. The expense limitation agreement may be terminated or amended prior to January 31, 2014 with the approval of IOBF’s Board of Trustees. In connection with the organization of IOBF, organizational costs of $31,726 were incurred and expensed. In addition, offering costs of $157,852 were incurred, which are being amortized over a twelve month period.
For the year ended September 30, 2012, FIC, as underwriter, received from the Income Funds and Equity Funds $8,531,575 and $17,220,124, respectively, in commissions in connection with the sale of shares of the Funds, after allowing $31,274 and $25,012, respectively, to other dealers. For the year ended September 30, 2012, shareholder servicing costs for the Income Funds and Equity Funds included $2,576,904 (of which $49,762 was voluntarily waived by ADM on the Cash Management Fund) and $6,758,575, respectively, in transfer agent fees accrued to ADM and $438,697 and $1,891,557, respectively, in retirement accounts custodian fees accrued to ADM.
Pursuant to Distribution Plans adopted under Rule 12b-1 of the 1940 Act, each Fund, other than the Cash Management Fund, is authorized to pay FIC a fee up to .30% of the average daily net assets of the Class A shares and 1% of the average daily net assets of the Class B shares on an annualized basis each fiscal year, payable monthly. The Cash Management Fund is authorized to pay FIC a fee up to 1% of the average daily net assets of the Class B shares. The fee consists of a distribution fee and a service fee. The service fee is paid for the ongoing servicing of clients who are shareholders of that Fund. For the year ended September 30, 2012, total distribution plan fees accrued to FIC by the Income Funds and Equity Funds amounted to $4,454,528 and $11,035,814, respectively.
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Brandywine Global Investment Management, LLC, serves as investment subadviser to International Opportunities Bond Fund, Muzinich & Co., Inc., serves as investment subadviser to Fund For Income, Wellington Management Company, LLP serves as investment subadviser to Global Fund, Smith Asset Management Group, L.P. serves as investment subadviser to Select Growth Fund, Paradigm Capital Management, Inc. serves as investment subadviser to Special Situations Fund and Vontobel Asset Management, Inc. serves as investment subadviser to International Fund. The subadvisers are paid by FIMCO and not by the Funds.
4. Restricted Securities—Certain restricted securities are exempt from the registration requirements under Rule 144A of the Securities Act of 1933 and may only be sold to qualified institutional investors. Unless otherwise noted, these 144A securities are deemed to be liquid. At September 30, 2012, Investment Grade Fund held twenty-seven 144A securities with an aggregate value of $95,098,283 representing 17.6% of the Fund’s net assets, International Opportunities Bond Fund held one 144A security with a value of $60,144 representing 0.3% of the Fund’s net assets, Fund For Income held ninety-three 144A securities with an aggregate value of $194,959,326 representing 32.1% of the Fund’s net assets, Total Return Fund held twenty-two securities with an aggregate value of $24,723,419 representing 4.6% of the Fund’s net assets. Certain restricted securities are exempt from the registration requirements under Section 4(2) of the Securities Act of 1933 and may only be sold to qualified investors. Unless otherwise noted, these section 4(2) securities are deemed to be liquid. At September 30, 2012, Cash Management Fund held six Section 4(2) securities with an aggregate value of $23,298,737 representing 17.1% of the Fund’s net assets. These securities are valued as set forth in Note 1A.
5. High Yield Credit Risk—The investments of Fund For Income in high yield securities whether rated or unrated may be considered speculative and subject to greater market fluctuations and risks of loss of income and principal than lower-yielding, higher-rated, fixed-income securities. The risk of loss due to default by the issuer may be significantly greater for holders of high-yielding securities, because such securities are generally unsecured and are often subordinated to other creditors of the issuer.
6. Forward Currency Contracts—Forward currency contracts are obligations to purchase or sell a specific currency for an agreed-upon price at a future date. When the International Opportunities Bond Fund, Global Fund and the International Fund purchase or sell foreign securities they may enter into a forward currency contract to attempt to manage exposure to foreign exchange risk between the trade date and the settlement date of such transactions. The Funds could be exposed to risk if counter parties to the contracts are unable to meet the terms of their contracts or if the value of
161 |
Notes to Financial Statements (continued)
FIRST INVESTORS INCOME FUNDS
FIRST INVESTORS EQUITY FUNDS
September 30, 2012
the foreign currency changes unfavorably. Forward currency contracts are “marked-to-market” daily at the applicable translation rate and the resulting unrealized gains or losses are reflected in the Funds’ assets. The International Opportunities Bond Fund, Global Fund and International Fund had no forward currency contracts outstanding as of September 30, 2012.
7. Foreign Exchange Contracts—The International Opportunities Bond Fund, Global Fund and the International Fund may enter into foreign exchange contracts for the purchase or sale of foreign currencies at negotiated rates at future dates. These contracts are considered derivative instruments and are used to decrease exposure to foreign exchange risk associated with foreign currency denominated securities held by the Funds. The Funds could be exposed to risk if counter parties to the contracts are unable to meet the terms of their contracts or if the value of the foreign currency changes unfavorably. Foreign exchange contracts are “marked-to-market” daily at the applicable translation rate and the resulting unrealized gains and losses are reflected in the Funds’ assets.
The International Opportunities Bond Fund had the following foreign exchange contracts open at September 30, 2012:
Contracts to Buy | Unrealized | |||||||||
Foreign Currency | In Exchange for | Settlement Date | Gain (Loss) | |||||||
1,191,000 | Turkish Lira | US | $ 652,669 | 11/9/12 | US | $ 10,619 | ||||
332,000,000 | Chilean Peso | 686,442 | 11/16/12 | 13,169 | ||||||
1,774,000 | Brazilian Real | 864,652 | 11/19/12 | 9,757 | ||||||
112,000 | British Pound | 181,647 | 12/13/12 | (788) | ||||||
30,000 | Indian Rupee | 543,122 | 3/20/13 | 25,652 | ||||||
$2,928,532 | $ 58,409 | |||||||||
Contracts to Sell | Unrealized | |||||||||
Foreign Currency | In Exchange for | Settlement Date | Gain (Loss) | |||||||
2,311,000 | Australian Dollar | US | $2,398,300 | 10/10/12 | US | $ (4,911) | ||||
543,000 | Euro | 683,304 | 11/5/12 | (15,268) | ||||||
1,191,000 | Turkish Lira | 662,476 | 11/9/12 | (812) | ||||||
109,000 | British Pound | 176,099 | 12/13/12 | 85 | ||||||
929,000 | New Zealand Dollar | 760,601 | 12/14/12 | (11,122) | ||||||
$4,680,780 | $(32,028) | |||||||||
Net Unrealized Gain on Forward Currency Contracts | $ 26,381 |
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Fair Value of Derivative Instruments — The fair value of derivative instruments on the International Opportunities Bond Fund as of September 30, 2012, was as follows:
Assets Derivatives | Liability Derivatives | |||||||
Derivatives not accounted for | ||||||||
as hedging instruments under | Statements of Assets | Statements of Assets | ||||||
Statement 133 | and Liabilities Location | Value | and Liabilities Location | Value | ||||
Foreign exchange contracts: | Unrealized appreciation | Unrealized depreciation | ||||||
of foreign exchange | of foreign exchange | |||||||
contracts | $58,409 | contracts | $32,028 |
The Global Fund and International Fund had no foreign exchange contracts open as of September 30, 2012.
The effect of International Opportunities Bond and Global Funds’ derivative instruments on the Statement of Operations are as follows:
Amount of Realized Gain or Loss Recognized on Derivatives | ||
Derivatives not accounted | Net Realized Loss | |
for as hedging instruments | on Foreign Currency | |
under ASC 815 | Transactions | |
Foreign currency transactions: | ||
International Opportunities Bond Fund | $(10,082) | |
Global Fund | $(63,726) |
Amount of Change in Unrealized Gain or Loss Recognized on Derivatives | ||
Derivatives not accounted | Net Unrealized Appreciation | |
for as hedging instruments | on Foreign Currency | |
under ASC 815 | Transactions | |
Foreign currency transactions: | ||
International Opportunities Bond Fund | $26,381 |
8. Capital—The Trusts are authorized to issue an unlimited number of shares of beneficial interest without par value. The Trusts consist of the Funds listed on the cover page, each of which is a separate and distinct series of the Trusts. Each Fund has designated two classes of shares, Class A shares and Class B shares (each, a “Class”), except for International Opportunities Bond Fund, which has only designated Class A shares. Each share of each Class has an equal beneficial interest in the assets, has identical voting, dividend, liquidation and other rights and is subject to the same terms and conditions except that expenses allocated to a Class may be borne solely by that Class as determined by the Trustees and a Class may have exclusive voting rights with respect to matters affecting only that Class. Cash Management Fund’s Class A and
163 |
Notes to Financial Statements (continued)
FIRST INVESTORS INCOME FUNDS
FIRST INVESTORS EQUITY FUNDS
September 30, 2012
Class B shares are sold without an initial sales charge; however, its Class B shares may only be acquired through an exchange of Class B shares from another First Investors eligible Fund or through the reinvestment of dividends on Class B shares and are generally subject to a contingent deferred sales charge at the rate of 4% in the first year and declining to 0% over a six-year period, which is payable to FIC as underwriter of the Trusts. The Class A and Class B shares sold by the other Funds have a public offering price that reflects different sales charges and expense levels. Class A shares are sold with an initial sales charge of up to 5.75% of the amount invested and together with the Class B shares are subject to distribution plan fees as described in Note 3. Class B shares are sold without an initial sales charge, but are generally subject to a contingent deferred sales charge which declines in steps from 4% to 0% over a six-year period. Class B shares automatically convert into Class A shares after eight years. Realized and unrealized gains or losses, investment income and expenses (other than distribution plan fees) are allocated daily to each class of shares based upon the relative proportion of net assets to each class.
9. Tax Components of Capital and Distributions to Shareholders—The tax character of distributions declared for the years ended September 30, 2012 and September 30, 2011 were as follows:
Year Ended September 30, 2012 | Year Ended September 30, 2011 | |||||||||||
Distributions | Distributions | |||||||||||
Declared from | Declared from | |||||||||||
Long-Term | Long-Term | |||||||||||
Ordinary | Capital | Ordinary | Capital | |||||||||
Fund | Income | Gain | Total | Income | Gain | Total | ||||||
Government | $12,155,577 | $ — | $12,155,577 | $12,147,098 | $— | $12,147,098 | ||||||
Investment Grade | 20,074,396 | — | 20,074,396 | 18,824,838 | — | 18,824,838 | ||||||
International | ||||||||||||
Opportunities Bond | 24,887 | — | 24,887 | N/A | N/A | N/A | ||||||
Fund For Income | 35,665,019 | — | 35,665,019 | 36,182,918 | — | 36,182,918 | ||||||
Total Return | 8,939,972 | — | 8,939,972 | 9,309,019 | — | 9,309,019 | ||||||
Equity Income | 5,040,742 | — | 5,040,742 | 5,674,996 | — | 5,674,996 | ||||||
Growth & Income | 9,129,438 | — | 9,129,438 | 8,996,911 | — | 8,996,911 | ||||||
Global | 688,744 | — | 688,744 | — | — | — | ||||||
Opportunity | 2,940,690 | 15,873,389 | 18,814,079 | 792,911 | — | 792,911 | ||||||
Special Situations | 387,088 | 23,479,691 | 23,866,779 | — | — | — | ||||||
International | 2,185,379 | — | 2,185,379 | 2,309,096 | — | 2,309,096 |
164 |
As of September 30, 2012, the components of distributable earnings (deficit) on a tax basis were as follows:
Total | ||||||||||||
Undistributed | Undistributed | Capital | Other | Distributable | ||||||||
Ordinary | Capital | Losses | Accumulated | Unrealized | Earnings | |||||||
Fund | Income | Gains | Carryover | Losses* | Appreciation | (Deficit)** | ||||||
Government | $ 47,140 | $ — | $ (3,660,378) | $(2,980,400) | $ 17,780,360 | $ 11,186,722 | ||||||
Investment Grade | 89,971 | — | (19,426,536) | — | 51,926,013 | 32,589,448 | ||||||
International | ||||||||||||
Opportunities Bond | 9,917 | — | — | — | 364,000 | 373,917 | ||||||
Fund For Income | 1,157,402 | — | (181,922,972) | — | 22,076,497 | (158,689,073) | ||||||
Total Return | 2,722,209 | 4,493,755 | — | — | 97,528,880 | 104,744,844 | ||||||
Equity Income | 2,492,483 | — | (18,542,271) | (1,320,522) | 69,448,339 | 52,078,029 | ||||||
Growth & Income | 7,041,552 | — | (271,818) | (527,495) | 298,462,143 | 304,704,382 | ||||||
Global | 779,820 | — | (26,490,247) | (987,618) | 46,531,711 | 19,833,666 | ||||||
Select Growth | — | — | (68,076,131) | (1,449,594) | 74,003,557 | 4,477,832 | ||||||
Opportunity | 9,642,813 | 9,936,464 | — | — | 133,208,884 | 152,788,161 | ||||||
Special Situations | 4,548,247 | 2,096,132 | — | — | 65,529,849 | 72,174,228 | ||||||
International | — | — | (33,194,023) | (191,854) | 39,685,008 | 6,299,131 |
For the year ended September 30, 2012, the following reclassifications were made to reflect permanent differences between book and tax reporting which are primarily due to the differences between book and tax treatment of investments in real estate trusts, bond premium amortization, foreign currency transactions, paydowns on securities, fund organization expenses and expiration of capital loss carryovers.
Undistributed | Accumulated | ||||
Ordinary Income | Capital Gains | ||||
Fund | Capital Paid In | (Deficit) | (Losses) | ||
Government | $ — | $ 3,640,160 | $ (3,640,160) | ||
Investment Grade | — | 1,232,973 | (1,232,973) | ||
International | |||||
Opportunities Bond | (4,860) | 749 | 4,111 | ||
Fund For Income | (17,851,702) | 952,512 | 16,899,190 | ||
Total Return | — | 722,115 | (722,115) | ||
Global | — | (122,451) | 122,451 | ||
Select Growth | (285,356) | 285,356 | — | ||
International | (1,236,337) | 1,032,592 | 203,745 |
165 |
Notes to Financial Statements (continued)
FIRST INVESTORS INCOME FUNDS
FIRST INVESTORS EQUITY FUNDS
September 30, 2012
10. New Accounting Pronouncements—In December 2011, FASB issued ASU No. 2011-11, Balance Sheet (Topic 210): Disclosures about Offsetting Assets and Liabilities (“ASU 2011-11”). ASU 2011-11 relates to disclosures about offsetting assets and liabilities. The amendments in ASU 2011-11 require an entity to disclose information about offsetting and related arrangements to enable users of its financial statements to understand the effect of those arrangements on its financial position. The ASU 2011-11 is effective for annual reporting periods beginning on or after January 1, 2013, and interim periods within those annual periods. The guidance requires retrospective application for all comparative periods presented. At this time, management is evaluating the implications of ASU 2011-11 and its impact on the financial statements.
11. Subsequent Events—Subsequent events occurring after September 30, 2012 have been evaluated for potential impact to this report through the date the financial statements were issued. There were no subsequent events to report that would have a material impact on the Funds’ financial statements.
12. Reorganization of Blue Chip Fund into Growth & Income Fund—On December 9, 2011, the Growth & Income Fund acquired all of the net assets of the Blue Chip Fund in connection with a tax-free reorganization that was approved by the Equity Funds’ Board of Trustees. The Growth & Income Fund issued 25,233,878 Class A shares and 715,868 Class B shares to the Blue Chip Fund in connection with the reorganization. In return, it received net assets of $373,986,545 from the Blue Chip Fund (which included $31,271,862 of unrealized appreciation and $17,652,665 of accumulated net realized losses). The Growth & Income Fund’s shares were issued at their current net asset values as of the date of the reorganization. The aggregate net assets of the Growth & Income Fund and Blue Chip Fund immediately before the acquisition were $1,106,393,661 consisting of, with respect to Growth & Income Fund, $732,407,116 ($712,314,779 Class A and $20,092,337 Class B) and, with respect to Blue Chip Fund, $373,986,545 ($364,273,402 Class A and $9,713,143 Class B).
13. Litigation—The Blue Chip and Equity Income Funds have been named, and have received notice that they may be putative members of the proposed defendant class of shareholders, in a lawsuit filed in the United States Bankruptcy Court for the District of Delaware on November 1, 2010, by the Official Committee of Unsecured Creditors of Tribune Company (the “Committee”). The Committee is seeking to recover all payments made to beneficial owners of common stock in connection with a leveraged buyout of the Tribune Company (“LBO”), including payments made in connection with a 2007 tender offer into which the Blue Chip and Equity Income Funds tendered their shares of common stock of the Tribune Company. On December 9, 2011, the Blue Chip Fund was reorganized into the Growth & Income Fund pursuant to a Plan of
166 |
Reorganization and Termination, whereby all of the assets of the Blue Chip Fund were transferred to the Growth & Income Fund, the Growth & Income Fund assumed all of the liabilities of the Blue Chip Fund, including any contingent liabilities with respect to pending or threatened litigation or actions, and shareholders of Blue Chip Fund became shareholders of Growth & Income Fund. The adversary proceeding by the Committee has been stayed since it was filed (other than for limited discovery and service of the complaint). The adversary proceeding brought by the Committee has been transferred to the Southern District of New York and consolidated with other similar suits as discussed below. In addition, on June 2, 2011, the Blue Chip and Equity Income Funds were named as defendants in a lawsuit brought in connection with the Tribune Company’s LBO by Deutsche Bank Trust Company Americas, in its capacity as successor indenture trustee for a certain series of Senior Notes, Law Debenture Trust Company of New York, in its capacity as successor indenture trustee for a certain series of Senior Notes, and Wilmington Trust Company, in its capacity as successor indenture trustee for the PHONES Notes (together, the “Bondholder Plaintiffs”) in the Supreme Court of the State of New York. This suit has been removed to the United States District Court for the Southern District of New York and consolidated with other substantially similar suits against other former Tribune shareholders. The Bondholder Plaintiffs also seek to recover payments of the proceeds of the LBO. The extent of the Funds’ potential liability in any such actions has not been determined. The Funds have been advised by counsel that the Funds could be held liable to return all or part of the proceeds received in any of these actions, as well as interest and court costs, even though the Funds had no knowledge of, or participation in, any misconduct. The Equity Income Fund received proceeds of $1,526,566 in connection with the LBO, representing 0.38% of its net assets as of September 30, 2012. The Blue Chip Fund received proceeds of $790,772 in connection with the LBO, representing 0.06% of the net assets of Growth & Income Fund as of September 30, 2012. The Equity Income and Growth & Income Funds cannot predict the outcomes of these proceedings, and thus have not accrued any of the amounts sought in the various actions in the accompanying financial statements.
167 |
Financial Highlights
FIRST INVESTORS INCOME FUNDS
The following table sets forth the per share operating performance data for a share outstanding,
total return, ratios to average net assets and other supplemental data for each fiscal year ended
September 30, except as otherwise indicated..
P E R S H A R E D A T A | R A T I O S / S U P P L E M E N T A L D A T A | ||||||||||||||||||||||||||||||||
Less Distributions | Ratio to Average Net | ||||||||||||||||||||||||||||||||
Investment Operations | from | Ratio to Average Net | Assets Before Expenses | ||||||||||||||||||||||||||||||
Net Asset | Net Realized | Net Asset | Assets** | Waived or Assumed | |||||||||||||||||||||||||||||
Value, | Net | and Unrealized | Total from | Net | Net | Value, | Net Assets | Net Expenses | Net Expenses | Net | Net | Portfolio | |||||||||||||||||||||
Beginning | Investment | Gain on | Investment | Investment | Realized | Total | End of | Total | End of Year | After Fee | Before Fee | Investment | Investment | Turnover | |||||||||||||||||||
of Year | Income | Investments | Operations | Income | Gain | Distributions | Year | Return | * | (in millions) | Credits | Credits | (a) | Income | Expenses | Income (Loss) | Rate | ||||||||||||||||
CASH MANAGEMENT FUND | |||||||||||||||||||||||||||||||||
Class A | |||||||||||||||||||||||||||||||||
2008 | $ 1.00 | $.027 | — | $.027 | $.027 | — | $.027 | $ 1.00 | 2.69 | % | $234 | .80 | % | .80 | % | 2.63 | % | .92 | % | 2.51 | % | N/A | |||||||||||
2009 | 1.00 | .005 | — | .005 | .005 | — | .005 | 1.00 | 0.54 | 172 | .71 | .71 | .58 | 1.03 | .26 | N/A | |||||||||||||||||
2010 | 1.00 | — | — | — | — | — | — | 1.00 | 0.00 | 134 | .30 | .30 | .00 | 1.08 | (.78 | ) | N/A | ||||||||||||||||
2011 | 1.00 | — | — | — | — | — | — | 1.00 | 0.00 | 148 | .17 | .17 | .00 | 1.06 | (.89 | ) | N/A | ||||||||||||||||
2012 | 1.00 | — | — | — | — | — | — | 1.00 | 0.00 | 135 | .12 | .12 | .00 | 1.02 | (.90 | ) | N/A | ||||||||||||||||
Class B | |||||||||||||||||||||||||||||||||
2008 | 1.00 | .019 | — | .019 | .019 | — | .019 | 1.00 | 1.92 | 4 | 1.55 | 1.55 | 1.88 | 1.67 | 1.76 | N/A | |||||||||||||||||
2009 | 1.00 | .001 | — | .001 | .001 | — | .001 | 1.00 | 0.14 | 3 | 1.13 | 1.13 | .16 | 1.78 | (.49 | ) | N/A | ||||||||||||||||
2010 | 1.00 | — | — | — | — | — | — | 1.00 | 0.00 | 2 | .30 | .30 | .00 | 1.83 | (1.53 | ) | N/A | ||||||||||||||||
2011 | 1.00 | — | — | — | — | — | — | 1.00 | 0.00 | 2 | .17 | .17 | .00 | 1.81 | (1.64 | ) | N/A | ||||||||||||||||
2012 | 1.00 | — | — | — | — | — | — | 1.00 | 0.00 | 1 | .12 | .12 | .00 | 1.77 | (1.65 | ) | N/A | ||||||||||||||||
GOVERNMENT FUND | |||||||||||||||||||||||||||||||||
Class A | |||||||||||||||||||||||||||||||||
2008 | $10.64 | $ .49 | $.11 | $ .60 | $ .48 | — | $ .48 | $10.76 | 5.73 | % | $228 | 1.10 | % | 1.10 | % | 4.29 | % | 1.24 | % | 4.15 | % | 37 | % | ||||||||||
2009 | 10.76 | .47 | .44 | .91 | .47 | — | .47 | 11.20 | 8.59 | 287 | 1.10 | 1.10 | 4.03 | 1.26 | 3.87 | 43 | |||||||||||||||||
2010 | 11.20 | .43 | .16 | .59 | .43 | — | .43 | 11.36 | 5.39 | 326 | 1.13 | 1.13 | 3.44 | 1.24 | 3.33 | 42 | |||||||||||||||||
2011 | 11.36 | .36 | .28 | .64 | .41 | — | .41 | 11.59 | 5.73 | 347 | 1.12 | 1.12 | 3.12 | 1.23 | 3.01 | 35 | |||||||||||||||||
2012 | 11.59 | .27 | .04 | .31 | .38 | — | .38 | 11.52 | 2.71 | 382 | 1.10 | 1.10 | 2.28 | 1.21 | 2.17 | 36 | |||||||||||||||||
Class B | |||||||||||||||||||||||||||||||||
2008 | 10.64 | .41 | .12 | .53 | .41 | — | .41 | 10.76 | 4.99 | 12 | 1.80 | 1.80 | 3.59 | 1.94 | 3.45 | 37 | |||||||||||||||||
2009 | 10.76 | .39 | .43 | .82 | .39 | — | .39 | 11.19 | 7.75 | 13 | 1.80 | 1.80 | 3.33 | 1.96 | 3.17 | 43 | |||||||||||||||||
2010 | 11.19 | .35 | .17 | .52 | .36 | — | .36 | 11.35 | 4.70 | 11 | 1.83 | 1.83 | 2.74 | 1.94 | 2.63 | 42 | |||||||||||||||||
2011 | 11.35 | .26 | .29 | .55 | .33 | — | .33 | 11.57 | 4.94 | 7 | 1.82 | 1.82 | 2.42 | 1.93 | 2.31 | 35 | |||||||||||||||||
2012 | 11.57 | .17 | .07 | .24 | .30 | — | .30 | 11.51 | 2.11 | 6 | 1.80 | 1.80 | 1.59 | 1.91 | 1.47 | 36 |
168 | 169 |
Financial Highlights (continued)
FIRST INVESTORS INCOME FUNDS
P E R S H A R E D A T A | R A T I O S / S U P P L E M E N T A L D A T A | ||||||||||||||||||||||||||||||||
Less Distributions | Ratio to Average Net | ||||||||||||||||||||||||||||||||
Investment Operations | from | Ratio to Average Net | Assets Before Expenses | ||||||||||||||||||||||||||||||
Net Asset | Net Realized | Net Asset | Assets** | Waived or Assumed | |||||||||||||||||||||||||||||
Value, | Net | and Unrealized | Total from | Net | Net | Value, | Net Assets | Net Expenses | Net Expenses | Net | Net | Portfolio | |||||||||||||||||||||
Beginning | Investment | Gain (Loss) on | Investment | Investment | Realized | Total | End of | Total | End of Period | After Fee | Before Fee | Investment | Investment | Turnover | |||||||||||||||||||
of Period | Income | Investments | Operations | Income | Gain | Distributions | Period | Return | * | (in millions) | Credits | Credits | (a) | Income | Expenses | Income | Rate | ||||||||||||||||
INVESTMENT GRADE FUND | |||||||||||||||||||||||||||||||||
Class A | |||||||||||||||||||||||||||||||||
2008 | $ 9.42 | $.48 | $(1.20 | ) | $(.72 | ) | $.47 | — | $.47 | $ 8.23 | (8.12 | )% | $268 | 1.10 | % | 1.10 | % | 4.80 | % | 1.23 | % | 4.67 | % | 127 | % | ||||||||
2009 | 8.23 | .49 | .85 | 1.34 | .47 | — | .47 | 9.10 | 17.06 | 325 | 1.10 | 1.10 | 5.29 | 1.27 | 5.12 | 79 | |||||||||||||||||
2010 | 9.10 | .44 | .72 | 1.16 | .45 | — | .45 | 9.81 | 13.09 | 405 | 1.12 | 1.12 | 4.75 | 1.23 | 4.64 | 56 | |||||||||||||||||
2011 | 9.81 | .40 | (.16) | .24 | .43 | — | .43 | 9.62 | 2.48 | 437 | 1.11 | 1.11 | 3.94 | 1.22 | 3.83 | 34 | |||||||||||||||||
2012 | 9.62 | .38 | .68 | 1.06 | .41 | — | .41 | 10.27 | 11.22 | 532 | 1.08 | 1.08 | 3.54 | 1.19 | 3.43 | 40 | |||||||||||||||||
Class B | |||||||||||||||||||||||||||||||||
2008 | 9.41 | .42 | (1.21 | ) | (.79 | ) | .40 | — | .40 | 8.22 | (8.78 | ) | 17 | 1.80 | 1.80 | 4.10 | 1.93 | 3.97 | 127 | ||||||||||||||
2009 | 8.22 | .44 | .85 | 1.29 | .40 | — | .40 | 9.11 | 16.35 | 16 | 1.80 | 1.80 | 4.59 | 1.97 | 4.42 | 79 | |||||||||||||||||
2010 | 9.11 | .39 | .70 | 1.09 | .39 | — | .39 | 9.81 | 12.20 | 14 | 1.82 | 1.82 | 4.05 | 1.93 | 3.94 | 56 | |||||||||||||||||
2011 | 9.81 | .33 | (.16 | ) | .17 | .36 | — | .36 | 9.62 | 1.81 | 10 | 1.81 | 1.81 | 3.24 | 1.92 | 3.13 | 34 | ||||||||||||||||
2012 | 9.62 | .32 | .66 | .98 | .34 | — | .34 | 10.26 | 10.41 | 8 | 1.78 | 1.78 | 2.84 | 1.89 | 2.74 | 40 | |||||||||||||||||
INTERNATIONAL OPPORTUNITIES BOND FUND | |||||||||||||||||||||||||||||||||
Class A | |||||||||||||||||||||||||||||||||
2012(b) | $10.00 | $.01 | $ .23 | $ .24 | $.02 | — | $.02 | $10.22 | 2.35 | %†† | $ 20 | 1.30 | † | 1.30 | † | 1.10 | † | 9.76 | † | (6.12 | )† | 5 | % | ||||||||||
FUND FOR INCOME | |||||||||||||||||||||||||||||||||
Class A | |||||||||||||||||||||||||||||||||
2008 | $2.99 | $.21 | $(.54 | ) | $(.33 | ) | $.21 | — | $.21 | $2.45 | (11.58 | )% | $460 | 1.29 | % | 1.29 | % | 7.40 | % | 1.30 | % | 7.39 | % | 17 | % | ||||||||
2009 | 2.45 | .20 | (.13 | ) | .07 | .20 | — | .20 | 2.32 | 4.28 | 438 | 1.38 | 1.38 | 9.10 | 1.42 | 9.06 | 73 | ||||||||||||||||
2010 | 2.32 | .17 | .18 | .35 | .18 | — | .18 | 2.49 | 15.68 | 505 | 1.29 | 1.29 | 7.32 | 1.33 | 7.28 | 78 | |||||||||||||||||
2011 | 2.49 | .17 | (.14 | ) | .03 | .17 | — | .17 | 2.35 | 1.00 | 505 | 1.27 | 1.27 | 6.43 | 1.30 | 6.40 | 75 | ||||||||||||||||
2012 | 2.35 | .16 | .25 | .41 | .16 | — | .16 | 2.60 | 17.79 | 602 | 1.26 | 1.26 | 6.01 | 1.29 | 5.98 | 54 | |||||||||||||||||
Class B | |||||||||||||||||||||||||||||||||
2008 | 2.99 | .19 | (.54 | ) | (.35 | ) | .19 | — | .19 | 2.45 | (12.25 | ) | 15 | 1.99 | 1.99 | 6.70 | 2.00 | 6.69 | 17 | ||||||||||||||
2009 | 2.45 | .19 | (.13 | ) | .06 | .18 | — | .18 | 2.33 | 3.75 | 12 | 2.08 | 2.08 | 8.40 | 2.12 | 8.36 | 73 | ||||||||||||||||
2010 | 2.33 | .16 | .16 | .32 | .16 | — | .16 | 2.49 | 14.43 | 11 | 1.99 | 1.99 | 6.62 | 2.03 | 6.58 | 78 | |||||||||||||||||
2011 | 2.49 | .15 | (.13 | ) | .02 | .16 | — | .16 | 2.35 | .38 | 8 | 1.97 | 1.97 | 5.75 | 2.00 | 5.72 | 75 | ||||||||||||||||
2012 | 2.35 | .13 | .26 | .39 | .14 | — | .14 | 2.60 | 17.01 | 6 | 1.96 | 1.96 | 5.31 | 1.99 | 5.28 | 54 |
170 | 171 |
Financial Highlights
FIRST INVESTORS EQUITY FUNDS
The following table sets forth the per share operating performance data for a share outstanding,
total return, ratios to average net assets and other supplemental data for each period indicated.
P E R S H A R E D A T A | R A T I O S / S U P P L E M E N T A L D A T A | ||||||||||||||||||||||||||||||||
Less Distributions | Ratio to Average Net | ||||||||||||||||||||||||||||||||
Investment Operations | from | Ratio to Average | Assets Before Expenses | ||||||||||||||||||||||||||||||
Net Asset | Net Realized | Net Asset | Net Assets** | Waived or Assumed | |||||||||||||||||||||||||||||
Value, | Net | and Unrealized | Total from | Net | Net | Value, | Net Assets | Net Expenses | Net Expenses | Net | Net | Portfolio | |||||||||||||||||||||
Beginning | Investment | Gain (Loss) on | Investment | Investment | Realized | Total | End of | Total | End of Year | After Fee | Before Fee | Investment | Investment | Turnover | |||||||||||||||||||
of Year | Income | Investments | Operations | Income | Gain | Distributions | Year | Return | * | (in millions) | Credits | Credits | (a) | Income | Expenses | Income | Rate | ||||||||||||||||
TOTAL RETURN FUND | |||||||||||||||||||||||||||||||||
Class A | |||||||||||||||||||||||||||||||||
2008 | $15.86 | $.36 | $(2.31 | ) | $(1.95 | ) | $.37 | $.30 | $.67 | $13.24 | (12.66 | )% | $304 | 1.34 | % | 1.34 | % | 2.32 | % | N/A | N/A | 59 | % | ||||||||||
2009 | 13.24 | .30 | .03 | .33 | .32 | — | .32 | 13.25 | 2.77 | 316 | 1.43 | 1.43 | 2.35 | N/A | N/A | 53 | |||||||||||||||||
2010 | 13.25 | .28 | .95 | 1.23 | .29 | — | .29 | 14.19 | 9.38 | 361 | 1.37 | 1.37 | 2.02 | N/A | N/A | 40 | |||||||||||||||||
2011 | 14.19 | .31 | (.06 | ) | .25 | .34 | — | .34 | 14.10 | 1.65 | 385 | 1.33 | 1.33 | 1.97 | N/A | N/A | 36 | ||||||||||||||||
2012 | 14.10 | .30 | 2.71 | 3.01 | .30 | — | .30 | 16.81 | 21.46 | 532 | 1.32 | 1.32 | 1.79 | N/A | N/A | 32 | |||||||||||||||||
Class B | |||||||||||||||||||||||||||||||||
2008 | 15.63 | .26 | (2.29 | ) | (2.03 | ) | .27 | .30 | .57 | 13.03 | (13.35 | ) | 25 | 2.04 | 2.04 | 1.62 | N/A | N/A | 59 | ||||||||||||||
2009 | 13.03 | .21 | .03 | .24 | .23 | — | .23 | 13.04 | 2.10 | 21 | 2.13 | 2.13 | 1.65 | N/A | N/A | 53 | |||||||||||||||||
2010 | 13.04 | .18 | .94 | 1.12 | .20 | — | .20 | 13.96 | 8.62 | 17 | 2.07 | 2.07 | 1.32 | N/A | N/A | 40 | |||||||||||||||||
2011 | 13.96 | .19 | (.04 | ) | .15 | .23 | — | .23 | 13.88 | 1.01 | 13 | 2.03 | 2.03 | 1.30 | N/A | N/A | 36 | ||||||||||||||||
2012 | 13.88 | .18 | 2.65 | 2.83 | .18 | — | .18 | 16.53 | 20.49 | 11 | 2.02 | 2.02 | 1.09 | N/A | N/A | 32 | |||||||||||||||||
EQUITY INCOME† | |||||||||||||||||||||||||||||||||
Class A | |||||||||||||||||||||||||||||||||
2008 | $8.14 | $.12 | $(1.49 | ) | $(1.37 | ) | $.12 | — | $.12 | $ 6.65 | (16.91 | )% | $334 | 1.35 | % | 1.35 | % | 1.62 | % | N/A | N/A | 17 | % | ||||||||||
2009 | 6.65 | .11 | (.64 | ) | (.53 | ) | .11 | — | .11 | 6.01 | (7.81 | ) | 308 | 1.48 | 1.48 | 2.14 | N/A | N/A | 15 | ||||||||||||||
2010 | 6.01 | .09 | .49 | .58 | .09 | — | .09 | 6.50 | 9.76 | 335 | 1.38 | 1.38 | 1.45 | N/A | N/A | 21 | |||||||||||||||||
2011 | 6.50 | .11 | (.30 | ) | (.19 | ) | .11 | — | .11 | 6.20 | (3.12 | ) | 318 | 1.35 | 1.35 | 1.60 | N/A | N/A | 29 | ||||||||||||||
2012 | 6.20 | .13 | 1.44 | 1.57 | .10 | — | .10 | 7.67 | 25.36 | 392 | 1.33 | 1.33 | 1.75 | N/A | N/A | 38 | |||||||||||||||||
Class B | |||||||||||||||||||||||||||||||||
2008 | 8.01 | .07 | (1.46 | ) | (1.39 | ) | .07 | — | .07 | 6.55 | (17.42 | ) | 17 | 2.05 | 2.05 | .92 | N/A | N/A | 17 | ||||||||||||||
2009 | 6.55 | .08 | (.64 | ) | (.56 | ) | .07 | — | .07 | 5.92 | (8.43 | ) | 12 | 2.18 | 2.18 | 1.44 | N/A | N/A | 15 | ||||||||||||||
2010 | 5.92 | .05 | .48 | .53 | .05 | — | .05 | 6.40 | 8.97 | 11 | 2.08 | 2.08 | .75 | N/A | N/A | 21 | |||||||||||||||||
2011 | 6.40 | .06 | (.30 | ) | (.24 | ) | .06 | — | .06 | 6.10 | (3.87 | ) | 8 | 2.05 | 2.05 | .90 | N/A | N/A | 29 | ||||||||||||||
2012 | 6.10 | .08 | 1.42 | 1.50 | .05 | — | .05 | 7.55 | 24.56 | 7 | 2.03 | 2.03 | 1.02 | N/A | N/A | 38 |
172 | 173 |
Financial Highlights (continued)
FIRST INVESTORS EQUITY FUNDS
P E R S H A R E D A T A | R A T I O S / S U P P L E M E N T A L D A T A | ||||||||||||||||||||||||||||||||||
Less Distributions | Ratio to Average Net | ||||||||||||||||||||||||||||||||||
Investment Operations | from | Ratio to Average | Assets Before Expenses | ||||||||||||||||||||||||||||||||
Net Asset | Net | Net Realized | Distributions | Net Asset | Net Assets** | Waived or Assumed | |||||||||||||||||||||||||||||
Value, | Investment | and Unrealized | Total from | Net | Net | in Excess of | Value, | Net Assets | Net Expenses | Net Expenses | Net | Net | Portfolio | ||||||||||||||||||||||
Beginning | Income | Gain (Loss) on | Investment | Investment | Realized | Net Investment | Total | End of | Total | End of Year | After Fee | Before Fee | Investment | Investment | Turnover | ||||||||||||||||||||
of Year | (Loss) | Investments | Operations | Income | Gain | Income | Distributions | Year | Return | * | (in millions) | Credits | Credits | (a) | Income (Loss) | Expenses | Income (Loss) | Rate | |||||||||||||||||
GROWTH & INCOME FUND | |||||||||||||||||||||||||||||||||||
Class A | |||||||||||||||||||||||||||||||||||
2008 | $16.86 | $.14 | $(3.66 | ) | $(3.52 | ) | $.11 | $ .23 | — | $ .34 | $13.00 | (21.23 | )% | $ 623 | 1.35 | % | 1.35 | % | .94 | % | N/A | N/A | 24 | % | |||||||||||
2009 | 13.00 | .09 | (1.02 | ) | (.93 | ) | .14 | .02 | — | .16 | 11.91 | (6.93 | ) | 578 | 1.51 | 1.51 | .90 | N/A | N/A | 26 | |||||||||||||||
2010 | 11.91 | .09 | .98 | 1.07 | .07 | — | — | .07 | 12.91 | 9.01 | 626 | 1.39 | 1.39 | .68 | N/A | N/A | 25 | ||||||||||||||||||
2011 | 12.91 | .19 | (.14 | ) | .05 | .18 | — | — | .18 | 12.78 | .25 | 626 | 1.34 | 1.34 | 1.33 | N/A | N/A | 24 | |||||||||||||||||
2012 | 12.78 | .21 | 3.81 | 4.02 | .14 | — | — | .14 | 16.66 | 31.60 | 1,226 | 1.29 | 1.29 | 1.35 | N/A | N/A | 22 | ||||||||||||||||||
Class B | |||||||||||||||||||||||||||||||||||
2008 | 15.99 | .03 | (3.47 | ) | (3.44 | ) | .02 | .23 | — | .25 | 12.30 | (21.82 | ) | 41 | 2.05 | 2.05 | .24 | N/A | N/A | 24 | |||||||||||||||
2009 | 12.30 | .01 | (.97 | ) | (.96 | ) | .10 | .02 | — | .12 | 11.22 | (7.59 | ) | 30 | 2.21 | 2.21 | .20 | N/A | N/A | 26 | |||||||||||||||
2010 | 11.22 | (.03 | ) | .95 | .92 | — | — | — | — | 12.14 | 8.23 | 26 | 2.09 | 2.09 | (.02 | ) | N/A | N/A | 25 | ||||||||||||||||
2011 | 12.14 | .08 | (.12 | ) | (.04 | ) | .09 | — | — | .09 | 12.01 | (.44 | ) | 20 | 2.04 | 2.04 | .66 | N/A | N/A | 24 | |||||||||||||||
2012 | 12.01 | .10 | 3.58 | 3.68 | .05 | — | — | .05 | 15.64 | 30.71 | 27 | 1.99 | 1.99 | .63 | N/A | N/A | 22 | ||||||||||||||||||
GLOBAL FUND | |||||||||||||||||||||||||||||||||||
Class A | |||||||||||||||||||||||||||||||||||
2008 | $ 8.82 | $.03 | $(1.97 | ) | $(1.94 | ) | $.01 | $1.12 | $ — | $1.13 | $ 5.75 | (25.44 | )% | $ 249 | 1.70 | % | 1.70 | % | .39 | % | 1.73 | % | .36 | % | 133 | % | |||||||||
2009 | 5.75 | .02 | — | .02 | .02 | — | .02 | .04 | 5.73 | .53 | 249 | 1.90 | 1.90 | .38 | 1.93 | .35 | 141 | ||||||||||||||||||
2010 | 5.73 | — | .42 | .42 | .01 | — | — | .01 | 6.14 | 7.33 | 269 | 1.72 | 1.72 | .04 | 1.75 | .01 | 92 | ||||||||||||||||||
2011 | 6.14 | .01 | (.61 | ) | (.60 | ) | — | — | — | — | 5.54 | (9.77 | ) | 241 | 1.67 | 1.67 | .18 | 1.70 | .15 | 103 | |||||||||||||||
2012 | 5.54 | .03 | 1.24 | 1.27 | .02 | — | — | .02 | 6.79 | 22.88 | 283 | 1.68 | 1.69 | .44 | 1.70 | .42 | 94 | ||||||||||||||||||
Class B | |||||||||||||||||||||||||||||||||||
2008 | 7.98 | (.02 | ) | (1.75 | ) | (1.77 | ) | — | 1.12 | — | 1.12 | 5.09 | (25.91 | ) | 9 | 2.40 | 2.40 | (.31 | ) | 2.43 | (.34 | ) | 133 | ||||||||||||
2009 | 5.09 | (.03 | ) | — | (.03 | ) | .01 | — | .02 | .03 | 5.03 | (.37 | ) | 7 | 2.60 | 2.60 | (.32 | ) | 2.63 | (.35 | ) | 141 | |||||||||||||
2010 | 5.03 | (.06 | ) | .39 | .33 | — | — | — | — | 5.36 | 6.56 | 7 | 2.42 | 2.42 | (.66 | ) | 2.45 | (.69 | ) | 92 | |||||||||||||||
2011 | 5.36 | (.09 | ) | (.46 | ) | (.55 | ) | — | — | — | — | 4.81 | (10.26 | ) | 5 | 2.37 | 2.37 | (.55 | ) | 2.40 | (.58 | ) | 103 | ||||||||||||
2012 | 4.81 | (.09 | ) | 1.15 | 1.06 | .01 | — | — | .01 | 5.86 | 21.99 | 4 | 2.38 | 2.39 | (.27 | ) | 2.40 | (.29 | ) | 94 |
174 | 175 |
Financial Highlights (continued)
FIRST INVESTORS EQUITY FUNDS
P E R S H A R E D A T A | R A T I O S / S U P P L E M E N T A L D A T A | ||||||||||||||||||||||||||||||||
Less Distributions | Ratio to Average Net | ||||||||||||||||||||||||||||||||
Investment Operations | from | Ratio to Average | Assets Before Expenses | ||||||||||||||||||||||||||||||
Net Asset | Net | Net Realized | Net Asset | Net Assets** | Waived or Assumed | ||||||||||||||||||||||||||||
Value, | Investment | and Unrealized | Total from | Net | Net | Value, | Net Assets | Net Expenses | Net Expenses | Net | Net | Portfolio | |||||||||||||||||||||
Beginning | Income | Gain (Loss) on | Investment | Investment | Realized | Total | End of | Total | End of Year | After Fee | Before Fee | Investment | Investment | Turnover | |||||||||||||||||||
of Year | (Loss) | Investments | Operations | Income | Gain | Distributions | Year | Return | * | (in millions) | Credits | Credits | (a) | Income (Loss) | Expenses | Income | Rate | ||||||||||||||||
SELECT GROWTH FUND | |||||||||||||||||||||||||||||||||
Class A | |||||||||||||||||||||||||||||||||
2008 | $10.21 | $(.04 | ) | $(2.06 | ) | $(2.10 | ) | — | $1.42 | $1.42 | $ 6.69 | (23.84 | )% | $207 | 1.46 | % | 1.47 | % | (.52 | )% | N/A | N/A | 99 | % | |||||||||
2009 | 6.69 | (.02 | ) | (1.34 | ) | (1.36 | ) | — | — | — | 5.33 | (20.33 | ) | 170 | 1.67 | 1.67 | (.51 | ) | N/A | N/A | 120 | ||||||||||||
2010 | 5.33 | (.03 | ) | .49 | .46 | — | — | — | 5.79 | 8.63 | 184 | 1.56 | 1.56 | (.48 | ) | N/A | N/A | 98 | |||||||||||||||
2011 | 5.79 | (.02 | ) | .54 | .52 | — | — | — | 6.31 | 8.98 | 203 | 1.45 | 1.45 | (.28 | ) | N/A | N/A | 62 | |||||||||||||||
2012 | 6.31 | (.03 | ) | 1.70 | 1.67 | — | — | — | 7.98 | 26.47 | 271 | 1.42 | 1.42 | (.35 | ) | N/A | N/A | 53 | |||||||||||||||
Class B | |||||||||||||||||||||||||||||||||
2008 | 9.70 | (.09 | ) | (1.94 | ) | (2.03 | ) | — | 1.42 | 1.42 | 6.25 | (24.43 | ) | 18 | 2.16 | 2.17 | (1.22 | ) | N/A | N/A | 99 | ||||||||||||
2009 | 6.25 | (.06 | ) | (1.25 | ) | (1.31 | ) | — | — | — | 4.94 | (20.96 | ) | 10 | 2.37 | 2.37 | (1.21 | ) | N/A | N/A | 120 | ||||||||||||
2010 | 4.94 | (.07 | ) | .46 | .39 | — | — | — | 5.33 | 7.90 | 8 | 2.26 | 2.26 | (1.18 | ) | N/A | N/A | 98 | |||||||||||||||
2011 | 5.33 | (.07 | ) | .51 | .44 | — | — | — | 5.77 | 8.26 | 7 | 2.15 | 2.15 | (.98 | ) | N/A | N/A | 62 | |||||||||||||||
2012 | 5.77 | (.09 | ) | 1.57 | 1.48 | — | — | — | 7.25 | 25.65 | 6 | 2.12 | 2.12 | (1.07 | ) | N/A | N/A | 53 | |||||||||||||||
OPPORTUNITY FUND†† | |||||||||||||||||||||||||||||||||
Class A | |||||||||||||||||||||||||||||||||
2008 | $31.32 | $ — | $(5.53 | ) | $(5.53 | ) | $.14 | $2.66 | $2.80 | $22.99 | (19.40 | )% | $377 | 1.39 | % | 1.40 | % | (.01 | )% | N/A | N/A | 40 | % | ||||||||||
2009 | 22.99 | .01 | (1.61 | ) | (1.60 | ) | — | .63 | .63 | 20.76 | (6.24 | ) | 355 | 1.58 | 1.58 | .09 | N/A | N/A | 35 | ||||||||||||||
2010 | 20.76 | .05 | 2.65 | 2.70 | — | — | — | 23.46 | 13.01 | 402 | 1.44 | 1.44 | .24 | N/A | N/A | 40 | |||||||||||||||||
2011 | 23.46 | .17 | .49 | .66 | .05 | — | .05 | 24.07 | 2.77 | 415 | 1.36 | 1.36 | .62 | N/A | N/A | 37 | |||||||||||||||||
2012 | 24.07 | .26 | 6.10 | 6.36 | .17 | .89 | 1.06 | 29.37 | 26.99 | 530 | 1.35 | 1.35 | .94 | N/A | N/A | 36 | |||||||||||||||||
Class B | |||||||||||||||||||||||||||||||||
2008 | 28.31 | (.21 | ) | (4.89 | ) | (5.10 | ) | .14 | 2.66 | 2.80 | 20.41 | (19.99 | ) | 32 | 2.09 | 2.10 | (.71 | ) | N/A | N/A | 40 | ||||||||||||
2009 | 20.41 | (.10 | ) | (1.47 | ) | (1.57 | ) | — | .63 | .63 | 18.21 | (6.90 | ) | 23 | 2.28 | 2.28 | (.61 | ) | N/A | N/A | 35 | ||||||||||||
2010 | 18.21 | (.14 | ) | 2.37 | 2.23 | — | — | — | 20.44 | 12.25 | 20 | 2.14 | 2.14 | (.52 | ) | N/A | N/A | 40 | |||||||||||||||
2011 | 20.44 | (.10 | ) | .52 | .42 | .01 | — | .01 | 20.85 | 2.04 | 15 | 2.06 | 2.06 | (.04 | ) | N/A | N/A | 37 | |||||||||||||||
2012 | 20.85 | .01 | 5.31 | 5.32 | .13 | .89 | 1.02 | 25.15 | 26.12 | 13 | 2.05 | 2.05 | .15 | N/A | N/A | 36 |
176 | 177 |
Financial Highlights (continued)
FIRST INVESTORS EQUITY FUNDS
P E R S H A R E D A T A | R A T I O S / S U P P L E M E N T A L D A T A | ||||||||||||||||||||||||||||||||
Less Distributions | Ratio to Average Net | ||||||||||||||||||||||||||||||||
Investment Operations | from | Ratio to Average | Assets Before Expenses | ||||||||||||||||||||||||||||||
Net Assets** | Waived or Assumed | ||||||||||||||||||||||||||||||||
Net Asset | Net | Net Realized | Net Asset | ||||||||||||||||||||||||||||||
Value, | Investment | and Unrealized | Total from | Net | Net | Value, | Net Assets | Net Expenses | Net Expenses | Net | Net | Portfolio | |||||||||||||||||||||
Beginning | Income | Gain (Loss) on | Investment | Investment | Realized | Total | End of | Total | End of Year | After Fee | Before Fee | Investment | Investment | Turnover | |||||||||||||||||||
of Year | (Loss) | Investments | Operations | Income | Gain | Distributions | Year | Return | * | (in millions) | Credits | Credits | (a) | Income (Loss) | Expenses | Income (Loss) | Rate | ||||||||||||||||
SPECIAL SITUATIONS FUND | |||||||||||||||||||||||||||||||||
Class A | |||||||||||||||||||||||||||||||||
2008 | $24.27 | $ .03 | $(2.93 | ) | $(2.90 | ) | $ — | $1.22 | $1.22 | $20.15 | (12.67 | )% | $258 | 1.49 | % | 1.50 | % | .14 | % | 1.61 | % | .02 | % | 52 | % | ||||||||
2009 | 20.15 | .03 | (1.23 | ) | (1.20 | ) | .02 | .53 | .55 | 18.40 | (5.28 | ) | 246 | 1.64 | 1.64 | .22 | 1.82 | .04 | 55 | ||||||||||||||
2010 | 18.40 | (.05 | ) | 2.31 | 2.26 | — | — | — | 20.66 | 12.28 | 274 | 1.52 | 1.52 | (.28 | ) | 1.65 | (.41 | ) | 64 | ||||||||||||||
2011 | 20.66 | .03 | 1.03 | 1.06 | — | — | — | 21.72 | 5.13 | 285 | 1.44 | 1.44 | .13 | 1.54 | .03 | 73 | |||||||||||||||||
2012 | 21.72 | .01 | 4.46 | 4.47 | .03 | 1.76 | 1.79 | 24.40 | 21.19 | 343 | 1.43 | 1.43 | .03 | 1.53 | (.07 | ) | 41 | ||||||||||||||||
Class B | |||||||||||||||||||||||||||||||||
2008 | 21.73 | (.13 | ) | (2.57 | ) | (2.70 | ) | — | 1.22 | 1.22 | 17.81 | (13.26 | ) | 12 | 2.19 | 2.20 | (.56 | ) | 2.31 | (.68 | ) | 52 | |||||||||||
2009 | 17.81 | (.10 | ) | (1.09 | ) | (1.19 | ) | — | .53 | .53 | 16.09 | (5.99 | ) | 9 | 2.34 | 2.34 | (.48 | ) | 2.52 | (.66 | ) | 55 | |||||||||||
2010 | 16.09 | (.25 | ) | 2.11 | 1.86 | — | — | — | 17.95 | 11.56 | 8 | 2.22 | 2.22 | (.94 | ) | 2.35 | (1.07 | ) | 64 | ||||||||||||||
2011 | 17.95 | (.13 | ) | .92 | .79 | — | — | — | 18.74 | 4.40 | 6 | 2.14 | 2.14 | (.55 | ) | 2.24 | (.65 | ) | 73 | ||||||||||||||
2012 | 18.74 | (.15 | ) | 3.84 | 3.69 | — | 1.76 | 1.76 | 20.67 | 20.33 | 5 | 2.13 | 2.13 | (.67 | ) | 2.23 | (.77 | ) | 41 | ||||||||||||||
INTERNATIONAL FUND | |||||||||||||||||||||||||||||||||
Class A | |||||||||||||||||||||||||||||||||
2008 | $13.18 | $ .07 | $(3.45 | ) | $(3.38 | ) | $ — | $ .32 | $ .32 | $ 9.48 | (26.37 | )% | $105 | 1.95 | % | 1.95 | % | .20 | % | 1.94 | % | .20 | % | 122 | % | ||||||||
2009 | 9.48 | .29 | (.74 | ) | (.45 | ) | .13 | — | .13 | 8.90 | (4.52 | ) | 108 | 2.20 | 2.20 | 1.16 | N/A | N/A | 60 | ||||||||||||||
2010 | 8.90 | .15 | 1.15 | 1.30 | .02 | — | .02 | 10.18 | 14.63 | 130 | 1.97 | 1.97 | 1.33 | N/A | N/A | 32 | |||||||||||||||||
2011 | 10.18 | .12 | (.59 | ) | (.47 | ) | .17 | — | .17 | 9.54 | (4.70 | ) | 128 | 1.88 | 1.88 | 1.20 | N/A | N/A | 30 | ||||||||||||||
2012 | 9.54 | .10 | 2.20 | 2.30 | .16 | — | .16 | 11.68 | 24.34 | 166 | 1.82 | 1.82 | .86 | N/A | N/A | 41 | |||||||||||||||||
Class B | |||||||||||||||||||||||||||||||||
2008 | 13.07 | (.02 | ) | (3.40 | ) | (3.42 | ) | — | .32 | .32 | 9.33 | (26.91 | ) | 4 | 2.65 | 2.65 | (.50 | ) | 2.64 | (.50 | ) | 122 | |||||||||||
2009 | 9.33 | .22 | (.72 | ) | (.50 | ) | .12 | — | .12 | 8.71 | (5.19 | ) | 3 | 2.90 | 2.90 | .46 | N/A | N/A | 60 | ||||||||||||||
2010 | 8.71 | .08 | 1.12 | 1.20 | — | — | — | 9.91 | 13.78 | 4 | 2.67 | 2.67 | .59 | N/A | N/A | 32 | |||||||||||||||||
2011 | 9.91 | .01 | (.52 | ) | (.51 | ) | .16 | — | .16 | 9.24 | (5.30 | ) | 3 | 2.58 | 2.58 | .30 | N/A | N/A | 30 | ||||||||||||||
2012 | 9.24 | (.04 | ) | 2.19 | 2.15 | .14 | — | .14 | 11.25 | 23.50 | 3 | 2.52 | 2.52 | (.02 | ) | N/A | N/A | 41 |
178 | See notes to financial statements | 179 |
Report of Independent Registered Public
Accounting Firm
To the Shareholders and Board of Trustees of
First Investors Income Funds and First Investors Equity Funds
We have audited the accompanying statements of assets and liabilities, including the portfolios of investments of the Cash Management Fund, Government Fund, Investment Grade Fund, International Opportunities Bond Fund and Fund For Income (each a series of First Investors Income Funds), and the Total Return Fund, Equity Income Fund, Growth & Income Fund, Global Fund, Select Growth Fund, Opportunity Fund, Special Situations Fund and International Fund (each a series of First Investors Equity Funds), as of September 30, 2012, the related statements of operations, the statements of changes in net assets, and the financial highlights for each of the periods indicated thereon. These financial statements and financial highlights are the responsibility of the Funds’ management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. The Funds are not required to have, nor were we engaged to perform an audit of the Funds’ internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Funds’ internal control over financial reporting. Accordingly, we express no such opinion. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of September 30, 2012, by correspondence with the custodian and brokers. Where brokers have not replied to our confirmation requests, we have carried out other appropriate auditing procedures. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
180 |
In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of the Cash Management Fund, Government Fund, Investment Grade Fund, International Opportunities Bond Fund, Fund For Income, Total Return Fund, Equity Income Fund, Growth & Income Fund, Global Fund, Select Growth Fund, Opportunity Fund, Special Situations Fund and International Fund, as of September 30, 2012, and the results of their operations, changes in their net assets, and their financial highlights for the periods presented, in conformity with accounting principles generally accepted in the United States of America.
Tait, Weller & Baker LLP |
Philadelphia, Pennsylvania
November 28, 2012
181 |
Board Considerations of Advisory Contracts and Fees
(unaudited)
FIRST INVESTORS INCOME FUNDS
Annual Consideration of the Investment Advisory Agreements and the Sub-Advisory Agreement with Muzinich & Co., Inc.
The First Investors Income Funds’ (the “Trust”) investment advisory agreements with the Trust’s investment adviser and, as applicable, sub-adviser, on behalf of each of the Trust’s funds, must be approved for an initial term no greater than two years and renewed at least annually thereafter (i) by the vote of the Trustees or by a vote of the shareholders of each fund and (ii) by the vote of a majority of the Trustees who are not parties to the advisory agreement (or sub-advisory agreement, as applicable) or “interested persons” of any party thereto (the “Independent Trustees”), cast in person at a meeting called specifically for the purpose of voting on such approval.
The Board of Trustees (the “Board”) has four regularly scheduled and two informal meetings each year and takes into account throughout the year matters bearing on the approval of the advisory agreement (or sub-advisory agreement, as applicable). The Board and its standing committees also consider at each meeting factors that are relevant to the annual renewal of each fund’s advisory agreement (or sub-advisory agreement, as applicable), including the services and support provided to each fund and its shareholders.
On April 19, 2012 (the “April Meeting”), the Independent Trustees met in person with First Investors Management Company, Inc. (“FIMCO”), the Trust’s investment adviser, Trust counsel, independent legal counsel to the Independent Trustees (“Independent Legal Counsel”) and others to give preliminary consideration to information bearing on the continuation of the advisory agreement (or sub-advisory agreement, as applicable). The primary purpose of the April Meeting was to ensure that the Independent Trustees had ample opportunity to consider matters they deemed relevant in considering the continuation of the advisory agreement (or sub-advisory agreement, as applicable), and to request any additional information they considered reasonably necessary to their deliberations. The Independent Trustees also met in executive session with Independent Legal Counsel to consider the continuation of the advisory agreement (or sub-advisory agreement, as applicable) outside the presence of management. As part of the April Meeting, the Independent Trustees asked FIMCO to respond to certain additional questions prior to the contract approval meeting of the Board to be held on May 17, 2012 (the “May Meeting”).
At the May Meeting, the Board, including a majority of the Independent Trustees, approved the renewal of the investment advisory agreement (the “Advisory Agreement”) between FIMCO and each of the following funds (each a “Fund” and collectively the “Funds”): Government Fund, Investment Grade Fund, Fund For Income and Cash
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Management Fund. In addition, at the May Meeting, the Board, including a majority of the Independent Trustees, approved the renewal of the sub-advisory agreement (the “Sub-Advisory Agreement”) with Muzinich & Co., Inc. (“Muzinich”) with respect to the Fund For Income.
In reaching its decisions to approve the continuation of the Advisory Agreement for each Fund and the Sub-Advisory Agreement for the Fund For Income, the Board considered information furnished and discussed throughout the year at regularly scheduled Board and Committee meetings as well as information provided specifically in relation to the renewal of the Advisory Agreement and Sub-Advisory Agreement for the April Meeting and May Meeting. Information furnished at Board and/or Committee meetings throughout the year included FIMCO’s analysis of each Fund’s investment performance, presentations given by representatives of FIMCO and Muzinich and various reports on compliance and other services provided by FIMCO and its affiliates. In preparation for the April Meeting and/or May Meeting, the Independent Trustees requested and received information compiled by Lipper, Inc. (“Lipper”), an independent provider of investment company data, that included, among other things: (1) the investment performance over various time periods and the fees and expenses of each Fund as compared to a comparable group of funds as determined by Lipper (“Peer Group”); and (2) comparative information on each Fund’s volatility versus total return. Additionally, in response to specific requests from the Independent Trustees in connection with the April Meeting and/or May Meeting, FIMCO furnished, and the Board considered, information concerning various aspects of its operations, including: (1) the nature, extent and quality of services provided by FIMCO and its affiliates to the Funds, including investment advisory and administrative services to the Funds; (2) the actual management fees paid by each Fund to FIMCO; (3) the costs of providing services to each Fund and the profitability of FIMCO and its affiliate, Administrative Data Management Corp. (“ADM”), the Funds’ affiliated transfer agent, from the relationship with each Fund; and (4) any “fall out” or ancillary benefits accruing to FIMCO or its affiliates as a result of the relationship with each Fund. FIMCO also provided, and the Board considered, an analysis of the overall profitability of the First Investors mutual fund business that included various entities affiliated with FIMCO as well as comparative profitability information based on analysis performed by FIMCO of the financial statements of certain publicly-traded mutual fund asset managers and information on FIMCO’s plans to grow the assets of the Funds over the next five years. In addition to evaluating, among other things, the written information provided by FIMCO, the Board also evaluated the answers to questions posed by the Board to representatives of FIMCO.
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Board Considerations of Advisory Contracts and Fees (continued)
(unaudited)
FIRST INVESTORS INCOME FUNDS
In addition, in response to specific requests from the Independent Trustees in connection with the April Meeting and/or May Meeting, Muzinich furnished, and the Board reviewed, information concerning various aspects of its operations, including: (1) the nature, extent and quality of services provided by Muzinich to the Fund For Income; (2) the sub-advisory fee rates charged by Muzinich and a comparison of those fee rates to the fee rates of Muzinich for providing advisory services to other investment companies or accounts with an investment mandate similar to the Fund For Income; (3) profitability information provided by Muzinich; and (4) any “fall out” or ancillary benefits accruing to Muzinich as a result of the relationship with the Fund For Income.
In considering the information and materials described above, the Independent Trustees took into account management style, investment strategies and prevailing market conditions. Moreover, the Independent Trustees received assistance from and met separately with Independent Legal Counsel during both the April Meeting and May Meeting and were provided with a written description of their statutory responsibilities and the legal standards that are applicable to approvals of advisory agreements (and sub-advisory agreements, as applicable). Although the Advisory Agreement for all of the Funds and the Sub-Advisory Agreement for the Fund For Income were considered at the same Board meeting, the Independent Trustees addressed each Fund separately during the April Meeting and May Meeting.
Based on all of the information presented, the Board, including a majority of its Independent Trustees, determined on a Fund-by-Fund basis that the fees charged under the Advisory Agreement and Sub-Advisory Agreement are reasonable in relation to the services that are provided under each Agreement. The Board did not identify any single factor as being of paramount importance in reaching its conclusions and determinations with respect to the continuance of the Advisory Agreement for each Fund and Sub-Advisory Agreement. Although not meant to be all-inclusive, the following describes some of the factors that were considered by the Board in deciding to approve the continuance of the Advisory Agreement for each Fund and the Sub-Advisory Agreement with Muzinich.
Nature, Extent and Quality of Services
In examining the nature, extent and quality of the services provided by FIMCO, the Board recognized that FIMCO is dedicated to providing investment management services exclusively to the Funds and the other funds in the First Investors fund complex and that, unlike many other mutual fund managers, FIMCO is not in the business of providing management services to hedge funds, pension funds or private accounts. As a result, the Board considered that FIMCO’s personnel devote substantially all of their time to serving the funds in the First Investors fund complex.
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The Board also recognized that it is the philosophy of FIMCO and its affiliates to provide personal service to the shareholders of the Funds, that FIMCO and its affiliates strive to service the needs of a shareholder base that includes many investors who are less affluent and that the average account size of many of the First Investors funds is small by comparison to the industry average account size. The Board also considered management’s explanation regarding the significant costs involved in providing the level of personal service that the First Investors fund complex seeks to deliver to its shareholders.
The Board noted that FIMCO has undertaken extensive responsibilities as manager of the Funds, including: (1) the provision of investment advice to the Funds; (2) implementing policies and procedures designed to ensure compliance with each Fund’s investment objectives and policies; (3) the review of brokerage arrangements; (4) oversight of general portfolio compliance with applicable laws; (5) the provision of certain administrative services to the Funds, including fund accounting; (6) the implementation of Board directives as they relate to the Funds; and (7) evaluating and monitoring any sub-advisers. The Board noted that FIMCO provides not only advisory services but historically has provided certain administrative personnel and services that many other advisers do not provide without imposition of separate fees. The Board also noted the steps that FIMCO has taken to encourage strong performance, including providing significant incentives to portfolio managers and analysts based on Fund performance. In addition, the Board considered information regarding the overall financial strength of FIMCO and its affiliates and the resources and staffing in place with respect to the services provided to the Funds.
The Board also considered the nature, extent and quality of the services provided to the Funds by FIMCO’s affiliates, including transfer agency and distribution services. The Board took into account the fact that ADM is dedicated to providing transfer agency services exclusively to the Funds and the other funds in the First Investors fund complex. As a result, ADM can tailor its processes and services to satisfy the needs of the Funds’ shareholder base. The Board noted that the Funds’ shares are distributed primarily through First Investors Corporation (“FIC”), which is an affiliate of FIMCO.
Furthermore, the Board considered the nature, extent and quality of the investment management services provided by Muzinich to the Fund For Income. The Board considered Muzinich’s investment management process in managing the Fund For Income and the experience and capability of its personnel responsible for the portfolio management of the Fund For Income. The Board also considered information regarding the resources and staffing in place with respect to the services provided by Muzinich.
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Board Considerations of Advisory Contracts and Fees (continued)
(unaudited)
FIRST INVESTORS INCOME FUNDS
Based on the information considered, the Board concluded that the nature, extent and quality of the services provided to each Fund by FIMCO and the Fund For Income by Muzinich were consistent with the terms of the Advisory Agreement and Sub-Advisory Agreement, as applicable, and supported approval of the Advisory Agreement and Sub-Advisory Agreement.
Investment Performance
The Board placed significant emphasis on the investment performance of each of the Funds. While consideration was given to performance reports and discussions held at prior Board or Committee meetings, as applicable, particular attention was given to the performance information compiled by Lipper. In particular, the Trustees reviewed the performance of the Funds over the most recent calendar year (“1-year period”) and the annualized performance over the most recent three calendar year period (“3-year period”) and five calendar year period (“5-year period”). In addition, the Board considered the performance information provided by FIMCO for each Fund through April 30, 2012 (the “year-to-date period”). The Board also reviewed the annual yield of each Fund for each of the past five calendar years. With regard to the performance and yield information, the Board considered the performance and yield of each Fund on a percentile and quintile basis as compared to its Peer Group. For purposes of the data provided, the first quintile is defined as 20% of the funds in the applicable Peer Group with the highest performance or yield, as applicable, and the fifth quintile is defined as 20% of the funds in the applicable Peer Group with the lowest performance or yield.
On a Fund-by-Fund basis, the performance reports indicated, and the Board noted, that the each Fund except the Government Fund fell within one of the top three quintiles for at least one of the performance periods provided by Lipper. The Board also noted that the yield for the Investment Grade Fund and Government Fund for each of the past five calendar years fell within one of the top three quintiles, the yield for the Fund For Income for three of the past five calendar years fell within one of the top three quintiles and the yield for the Cash Management Fund fell within one of the top three quintiles for one of the past five calendar years. Moreover, the Board considered the volatility versus total return data provided by Lipper as well as FIMCO’s representation that it believes that the Funds use a more conservative investment style than many of their peers.
Based on the information considered, the Board concluded that the investment performance of each Fund was either (a) acceptable or better, or (b) subject to reasonable steps to monitor or address underperformance.
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Fund Expenses, Costs of Services, Economies of Scale and Related Benefits
Management Fees and Expenses. The Board also gave substantial consideration to the fees payable under each Fund’s Advisory Agreement as well as under the Sub-Advisory Agreement for the Fund For Income.
The Board reviewed the information compiled by Lipper comparing each Fund’s contractual management fee rate (at common asset levels) and actual management fee rate (which included the effect of any fee waivers) as a percentage of average net assets to other funds in its Peer Group. In this regard, the Board considered the contractual and actual management fees of each Fund on a quintile basis as compared to its Peer Group and noted the relative position of each Fund within the Peer Group. The Board also considered that FIMCO provides not only advisory services but also certain administrative personnel to the Funds under each Fund’s Advisory Agreement and that many other advisers do not provide such administrative personnel under their advisory agreements and that FIMCO also provides certain administrative services without the imposition of a separate fee. The Board considered that FIMCO informed the Board that it intends to: (i) extend, on a voluntary basis, the existing total expense cap limitation for the Cash Management Fund until May 31, 2013; and (ii) extend, on a voluntary basis, the existing management fee caps for the Fund For Income, Government Fund and Investment Grade Fund until May 31, 2013. The Board also considered that, with respect to the Cash Management Fund, FIMCO was waiving 100% of its management fees and reimbursing a portion of other expenses to avoid a negative return for shareholders due to the extraordinarily low interest rate environment.
In considering the sub-advisory fee rates charged by and costs and profitability of Muzinich with regard to the Fund For Income, the Board noted that FIMCO pays Muzinich a sub-advisory fee from its own advisory fee rather than the Fund paying Muzinich a fee directly. Muzinich provided, and the Board reviewed, information comparing the fees charged by Muzinich for services to the Fund For Income versus the fee rates of Muzinich for providing advisory services to other comparable investment companies or accounts. Based on a review of this information, the Board noted that the fees charged by Muzinich for services to the Fund For Income appeared competitive to the fees Muzinich charges to its other comparable investment companies or accounts.
The Board also reviewed the information compiled by Lipper comparing each Fund’s Class A share total expense ratio, taking into account FIMCO’s expense waivers (as applicable), and the ratio of the sum of actual management and other non-management fees (i.e., fees other than management, transfer agency and 12b-1/non-12b-1 fees) to other funds in its Peer Group, including on a quintile basis. In considering the level of the total expense ratio and the ratio of the sum of actual management and other
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Board Considerations of Advisory Contracts and Fees (continued)
(unaudited)
FIRST INVESTORS INCOME FUNDS
non-management fees, the Board took into account management’s explanation that: (i) there are significant costs involved in providing the level of personal service that the First Investors fund complex seeks to deliver to its shareholders; (ii) overall Fund expenses cover certain check-writing and wiring privileges for Cash Management Fund shareholders at no additional cost; (iii) the custodial fees for shareholders who invest in the Funds through retirement accounts are paid by the Funds and are reflected in the Funds’ total expense ratio, and a significant majority of the shares of the Funds, other than the Cash Management Fund, are held in retirement accounts; and (iv) Lipper expense comparisons do not take into account the size of a fund complex, and as a result, in most cases the First Investors funds are compared to funds in complexes that are much larger than First Investors. The Board also noted that Lipper’s customized expense groups tend to be fairly small in number and the funds included in the Peer Group generally change from year to year, thereby introducing an element of randomness that affects comparative results each year. While recognizing the limitations inherent in Lipper’s methodology, the Board believed that the data provided by Lipper was a generally appropriate measure of comparative expenses.
The foregoing comparisons assisted the Trustees by providing them with a basis for evaluating each Fund’s management fee and expense ratio on a relative basis.
Profitability. The Board reviewed the materials it received from FIMCO regarding its revenues and costs in providing investment management and certain administrative services to the Funds. In particular, the Board considered the analysis of FIMCO’s profitability with respect to each Fund, calculated for the year ended December 31, 2011, as well as overall profitability information relating to the past five calendar years. The Board also considered the information provided by FIMCO comparing the profitability of certain publicly-traded mutual fund asset managers as analyzed by FIMCO based on publicly available financial statements. In reviewing the profitability information, the Board also considered the “fall-out” or ancillary benefits that may accrue to FIMCO and its affiliates as a result of their relationship with the Funds, which are discussed below. The Board acknowledged that, as a business matter, FIMCO was entitled to earn reasonable profits for its services to the Funds. Based on the information provided, the Board also noted that FIMCO operates the Cash Management Fund at a loss.
Economies of Scale. With respect to whether economies of scale are realized by FIMCO as a Fund’s assets increase and the extent to which any economies of scale are reflected in the level of management fee rates charged, the Board considered that the Advisory Agreement fee schedule for each Fund, except the Cash Management Fund, includes breakpoints to account for management economies of scale. With respect to
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the Cash Management Fund, the Board concluded that the fee structure is appropriate at current asset levels.
“Fall Out” or Ancillary Benefits. The Board considered the “fall-out” or ancillary benefits that may accrue to FIMCO and Muzinich as a result of their relationship with the Funds. The Board considered the profits earned or losses incurred by ADM and the income received by FIC as a result of FIMCO’s management of the First Investors funds. The Board also considered the fact that Muzinich does not engage in any soft dollar arrangements.
* * * |
In summary, based on all relevant information and factors, none of which was individually determinative of the outcome, the Board, including a majority of the Independent Trustees, approved the renewal of the Advisory Agreement and the Sub-Advisory Agreement with Muzinich.
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Board Considerations of Advisory Contracts and Fees (continued)
(unaudited)
FIRST INVESTORS INCOME FUNDS
Consideration of the Investment Advisory Agreement and the Sub-Advisory Agreement with Brandywine Global Investment Management, LLC with respect to the First Investors International Opportunities Bond Fund
At the May 17, 2012 meeting (the “May Meeting”) of the Board of Trustees (the “Board”) of the First Investors Income Funds (the “Trust”), the Board, including a majority of the Independent Trustees, discussed and approved, for the new First Investors International Opportunities Bond Fund (the “Fund”), the investment advisory agreement (the “Advisory Agreement”) with First Investors Management Company, Inc. (“FIMCO”) and the sub-advisory agreement (the “Sub-Advisory Agreement”) with Brandywine Global Investment Management, LLC (“Brandywine,” and together with FIMCO, the “Advisers”).
The Trustees were provided with detailed materials relating to the Advisers in advance of and at the May Meeting. The material factors and conclusions that formed the basis for the approval are discussed below. In addition, the Trustees met in person with FIMCO, Brandywine, Trust counsel, independent legal counsel to the Independent Trustees (“Independent Legal Counsel”) and others.
In making their determinations, the Trustees took into account management style, investment strategies, investment philosophy and process, Brandywine’s past performance, Brandywine’s personnel that would be serving the Fund, and prevailing market conditions. In evaluating the Advisory Agreement and Sub-Advisory Agreement, the Trustees also reviewed information provided by the Advisers, including the terms of such Agreements and information regarding fee arrangements, including the structure of the advisory and sub-advisory fees, that FIMCO will pay Brandywine out of FIMCO’s advisory fees, the method of computing fees, and the frequency of payment of fees. The Trustees also reviewed reports from Lipper Inc. (“Lipper”), an independent provider of investment company data, comparing the Fund’s contractual advisory fee and total expenses with an expense universe created by Lipper of similar or peer group funds. In addition, the Trustees reviewed, among other things, information regarding Brandywine’s compliance program, financial condition, insurance coverage, portfolio manager compensation and brokerage practices.
* * * |
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After extensive discussion and consideration among themselves, and with the Advisers, Trust counsel and Independent Legal Counsel, including during an executive session with Independent Legal Counsel, the Trustees concluded the following:
• The nature and extent of the investment advisory services to be provided to the Fund by the Advisers were consistent with the terms of the Advisory Agreement and Sub-Advisory Agreement, respectively.
• The prospects for satisfactory investment performance of the Fund were reasonable;
• Shareholders of the Fund may benefit from economies of scale in the future as assets grow due to breakpoints included in the fee schedule for the Advisory Agreement;
• The cost of services to be provided by the Advisers to the Fund was fair and reasonable in relation to the services and benefits to be provided to the Fund and that profits to be realized by the Advisers and their affiliates from their relationship with the Fund would be assessed after a reasonable period of Fund operations; and
• The Advisers may receive certain “fall out” or ancillary benefits by obtaining research and other services from broker-dealers that execute brokerage transactions for the Fund.
* * * |
Based on all relevant information and factors, none of which was individually determinative of the outcome, the Board, including a majority of the Independent Trustees, concluded that the approval of the Advisory Agreement and Sub-Advisory Agreement was in the best interests of the Fund and its shareholders and unanimously approved such Agreements.
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Board Considerations of Advisory Contracts and Fees
(unaudited)
FIRST INVESTORS EQUITY FUNDS
Annual Consideration of the Investment Advisory Agreements and the Sub-Advisory Agreements with Wellington Management Company, LLP, Paradigm Capital Management, Inc., Smith Group Asset Management, LP and Vontobel Asset Management, Inc.
The First Investors Equity Funds’ (the “Trust”) investment advisory agreements with the Trust’s investment adviser and, as applicable, sub-advisers, on behalf of each of the Trust’s funds, must be approved for an initial term no greater than two years and renewed at least annually thereafter (i) by the vote of the Trustees or by a vote of the shareholders of each fund and (ii) by the vote of a majority of the Trustees who are not parties to the advisory agreement (or sub-advisory agreements, as applicable) or “interested persons” of any party thereto (the “Independent Trustees”), cast in person at a meeting called specifically for the purpose of voting on such approval.
The Board of Trustees (the “Board”) has four regularly scheduled and two informal meetings each year and takes into account throughout the year matters bearing on the approval of the advisory agreement (or sub-advisory agreements, as applicable). The Board and its standing committees also consider at each meeting factors that are relevant to the annual renewal of each fund’s advisory agreement (or sub-advisory agreements, as applicable), including the services and support provided to each fund and its shareholders.
On April 19, 2012 (the “April Meeting”), the Independent Trustees met in person with First Investors Management Company, Inc. (“FIMCO”), the Trust’s investment adviser, Trust counsel, independent legal counsel to the Independent Trustees (“Independent Legal Counsel”) and others to give preliminary consideration to information bearing on the continuation of the advisory agreement (or sub-advisory agreements, as applicable). The primary purpose of the April Meeting was to ensure that the Independent Trustees had ample opportunity to consider matters they deemed relevant in considering the continuation of the advisory agreement (or sub-advisory agreements, as applicable), and to request any additional information they considered reasonably necessary to their deliberations. The Independent Trustees also met in executive session with Independent Legal Counsel to consider the continuation of the advisory agreement (or sub-advisory agreements, as applicable) outside the presence of management. As part of the April Meeting, the Independent Trustees asked FIMCO to respond to certain additional questions prior to the contract approval meeting of the Board to be held on May 17, 2012 (the “May Meeting”).
At the May Meeting, the Board, including a majority of the Independent Trustees, approved the renewal of the investment advisory agreement (the “Advisory Agreement”) between FIMCO and each of the following funds (each a “Fund” and collectively the
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“Funds”): Growth & Income Fund, Total Return Fund, Value Fund (now called Equity Income Fund), Opportunity Fund, Special Situations Fund, Select Growth Fund, Global Fund and International Fund. In addition, at the May Meeting, the Board, including a majority of the Independent Trustees, approved the renewal of the sub-advisory agreements (each a “Sub-Advisory Agreement” and collectively the “Sub-Advisory Agreements”) with: (1) Wellington Management Company, LLP (“WMC”) with respect to the Global Fund; (2) Paradigm Capital Management, Inc. (“Paradigm”) with respect to the Special Situations Fund; (3) Smith Group Asset Management, LP (“Smith Group”) with respect to the Select Growth Fund; and (4) Vontobel Asset Management, Inc. (“Vontobel”) with respect to the International Fund. The Global Fund, Special Situations Fund, Select Growth Fund and International Fund are collectively referred to as the “Sub-Advised Funds.”
In reaching its decisions to approve the continuation of the Advisory Agreement for each Fund and the Sub-Advisory Agreements for the Sub-Advised Funds, the Board considered information furnished and discussed throughout the year at regularly scheduled Board and Committee meetings as well as information provided specifically in relation to the renewal of the Advisory Agreement and Sub-Advisory Agreements for the April Meeting and May Meeting. Information furnished at Board and/or Committee meetings throughout the year included FIMCO’s analysis of each Fund’s investment performance, presentations given by representatives of FIMCO, WMC, Paradigm, Smith Group and Vontobel and various reports on compliance and other services provided by FIMCO and its affiliates. In preparation for the April Meeting and/or May Meeting, the Independent Trustees requested and received information compiled by Lipper, Inc. (“Lipper”), an independent provider of investment company data, that included, among other things: (1) the investment performance over various time periods and the fees and expenses of each Fund as compared to a comparable group of funds as determined by Lipper (“Peer Group”); and (2) comparative information on each Fund’s volatility versus total return. Additionally, in response to specific requests from the Independent Trustees in connection with the April Meeting and/or May Meeting, FIMCO furnished, and the Board considered, information concerning various aspects of its operations, including: (1) the nature, extent and quality of services provided by FIMCO and its affiliates to the Funds, including investment advisory and administrative services to the Funds; (2) the actual management fees paid by each Fund to FIMCO; (3) the costs of providing services to each Fund and the profitability of FIMCO and its affiliate, Administrative Data Management Corp. (“ADM”), the Funds’ affiliated transfer agent, from the relationship with each Fund; and (4) any “fall out” or ancillary benefits accruing to FIMCO or its affiliates as a result of the relationship with each Fund. FIMCO also provided, and the Board considered, an analysis of the overall profitability of the First Investors mutual fund business that included
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Board Considerations of Advisory Contracts and Fees (continued)
(unaudited)
FIRST INVESTORS EQUITY FUNDS
various entities affiliated with FIMCO as well as comparative profitability information based on analysis performed by FIMCO of the financial statements of certain publicly-traded mutual fund asset managers and information on FIMCO’s plans to grow the assets of the Funds over the next five years. In addition to evaluating, among other things, the written information provided by FIMCO, the Board also evaluated the answers to questions posed by the Board to representatives of FIMCO.
In addition, in response to specific requests from the Independent Trustees in connection with the April Meeting and/or May Meeting, WMC, Paradigm, Smith Group and Vontobel furnished, and the Board reviewed, information concerning various aspects of their respective operations, including: (1) the nature, extent and quality of services provided by WMC, Paradigm, Smith Group and Vontobel to the applicable Sub-Advised Funds; (2) the sub-advisory fee rates charged by WMC, Paradigm, Smith Group and Vontobel and a comparison of those fee rates to the fee rates of WMC, Paradigm, Smith Group and Vontobel for providing advisory services to other investment companies or accounts or compared to their standard fee schedule, as applicable, with an investment mandate similar to the applicable Sub-Advised Funds; (3) profitability information provided by WMC, Paradigm, Smith Group and Vontobel; and (4) any “fall out” or ancillary benefits accruing to WMC, Paradigm, Smith Group and Vontobel as a result of the relationship with each applicable Sub-Advised Fund.
In considering the information and materials described above, the Independent Trustees took into account management style, investment strategies and prevailing market conditions. Moreover, the Independent Trustees received assistance from and met separately with Independent Legal Counsel during both the April Meeting and May Meeting and were provided with a written description of their statutory responsibilities and the legal standards that are applicable to approvals of advisory agreements (and sub-advisory agreements, as applicable). Although the Advisory Agreement for all of the Funds and the Sub-Advisory Agreements for the Sub-Advised Funds were considered at the same Board meeting, the Independent Trustees addressed each Fund separately during the April Meeting and May Meeting.
Based on all of the information presented, the Board, including a majority of its Independent Trustees, determined on a Fund-by-Fund basis that the fees charged under the Advisory Agreement and each Sub-Advisory Agreement are reasonable in relation to the services that are provided under each Agreement. The Board did not identify any single factor as being of paramount importance in reaching its conclusions and determinations with respect to the continuance of the Advisory Agreement for each Fund and Sub-Advisory Agreements. Although not meant to be all-inclusive, the following describes some of the factors that were considered by the Board in deciding to
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approve the continuance of the Advisory Agreement for each Fund and Sub-Advisory Agreements with Paradigm, Smith Group, Vontobel and WMC.
Nature, Extent and Quality of Services
In examining the nature, extent and quality of the services provided by FIMCO, the Board recognized that FIMCO is dedicated to providing investment management services exclusively to the Funds and the other funds in the First Investors fund complex and that, unlike many other mutual fund managers, FIMCO is not in the business of providing management services to hedge funds, pension funds or private accounts. As a result, the Board considered that FIMCO’s personnel devote substantially all of their time to serving the funds in the First Investors fund complex.
The Board also recognized that it is the philosophy of FIMCO and its affiliates to provide personal service to the shareholders of the Funds, that FIMCO and its affiliates strive to service the needs of a shareholder base that includes many investors who are less affluent and that the average account size of many of the First Investors funds is small by comparison to the industry average account size. The Board also considered management’s explanation regarding the significant costs involved in providing the level of personal service that the First Investors fund complex seeks to deliver to its shareholders.
The Board noted that FIMCO has undertaken extensive responsibilities as manager of the Funds, including: (1) the provision of investment advice to the Funds; (2)) implementing policies and procedures designed to ensure compliance with each Fund’s investment objectives and policies; (3) the review of brokerage arrangements; (4) oversight of general portfolio compliance with applicable laws; (5) the provision of certain administrative services to the Funds, including fund accounting; (6) the implementation of Board directives as they relate to the Funds; and (7) evaluating and monitoring any sub-advisers. The Board noted that FIMCO provides not only advisory services but historically has provided certain administrative personnel and services that many other advisers do not provide without imposition of separate fees. The Board also noted the steps that FIMCO has taken to encourage strong performance, including providing significant incentives to portfolio managers and analysts based on Fund performance. In addition, the Board considered information regarding the overall financial strength of FIMCO and its affiliates and the resources and staffing in place with respect to the services provided to the Funds.
The Board also considered the nature, extent and quality of the services provided to the Funds by FIMCO’s affiliates, including transfer agency and distribution services. The Board took into account the fact that ADM is dedicated to providing transfer
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Board Considerations of Advisory Contracts and Fees (continued)
(unaudited)
FIRST INVESTORS EQUITY FUNDS
agency services exclusively to the Funds and the other funds in the First Investors fund complex. As a result, ADM can tailor its processes and services to satisfy the needs of the Funds’ shareholder base. The Board noted that the Funds’ shares are distributed primarily through First Investors Corporation (“FIC”), which is an affiliate of FIMCO.
Furthermore, the Board considered the nature, extent and quality of the investment management services provided by WMC, Paradigm, Smith Group and Vontobel to the applicable Sub-Advised Funds. The Board considered WMC’s, Paradigm’s, Smith Group’s and Vontobel’s investment management process in managing the applicable Sub-Advised Funds and the experience and capability of their respective personnel responsible for the portfolio management of the applicable Sub-Advised Funds. The Board also considered information regarding the resources and staffing in place with respect to the services provided by each sub-adviser.
Based on the information considered, the Board concluded that the nature, extent and quality of the services provided to each Fund by FIMCO and the applicable Sub-Advised Funds by WMC, Paradigm, Smith Group and Vontobel were appropriate and consistent with the terms of the Advisory Agreement and Sub-Advisory Agreements, as applicable, and supported approval of the Advisory Agreement and each Sub-Advisory Agreement.
Investment Performance
The Board placed significant emphasis on the investment performance of each of the Funds. While consideration was given to performance reports and discussions held at prior Board or Committee meetings, as applicable, particular attention was given to the performance information compiled by Lipper. In particular, the Board reviewed the performance of the Funds over the most recent calendar year (“1-year period”) and, to the extent provided by Lipper, the annualized performance over the most recent three calendar year period (“3-year period”) and five calendar year period (“5-year period”). In addition, the Board considered the performance information provided by FIMCO for each Fund through April 30, 2012 (the “year-to-date period”). With regard to the performance information, the Board considered the performance of each Fund on a percentile and quintile basis as compared to its Peer Group. For purposes of the performance data provided, the first quintile is defined as 20% of the funds in the applicable Peer Group with the highest performance and the fifth quintile is defined as 20% of the funds in the applicable Peer Group with the lowest performance.
On a Fund-by-Fund basis, the performance reports indicated, and the Board noted, that each Fund except the Value Fund fell within one of the top three quintiles for at least one of the performance periods provided by Lipper. With regard to the Value Fund (now called Equity Income Fund), the Board noted that performance for the year-to-date
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period showed signs of improvement. The Board also considered the volatility versus total return data provided by Lipper as well as FIMCO’s representation that it believes that the Funds use a more conservative investment style than many of their peers.
Based on the information considered, the Board concluded that the investment performance of each Fund was either (a) acceptable or better, or (b) subject to reasonable steps to monitor or address underperformance.
Fund Expenses, Costs of Services, Economies of Scale and Related Benefits
Management Fees and Expenses. The Board also gave substantial consideration to the fees payable under each Fund’s Advisory Agreement as well as under the Sub-Advisory Agreements for the Sub-Advised Funds.
The Board reviewed the information compiled by Lipper comparing each Fund’s contractual management fee rate (at common asset levels) and actual management fee rate (which included the effect of any fee waivers) as a percentage of average net assets to other funds in its Peer Group. In this regard, the Board considered the contractual and actual management fees of each Fund on a quintile basis as compared to its Peer Group and noted the relative position of each Fund within the Peer Group. The Board also considered that FIMCO provides not only advisory services but also certain administrative personnel to the Funds under each Fund’s Advisory Agreement and that many other advisers do not provide such administrative personnel under their advisory agreements and that FIMCO also provides certain administrative services without the imposition of a separate fee. The Board also considered that FIMCO informed the Board that it intends to extend, on a voluntary basis, the existing management fee cap for the Special Situations Fund until May 31, 2013 and agreed to lower the contractual management fee rate on the Global Fund by three basis points going forward in lieu of a voluntary management fee cap.
In considering the sub-advisory fee rates charged by and costs and profitability of WMC, Paradigm, Smith Group and Vontobel with regard to the respective Sub-Advised Funds, the Board noted that FIMCO pays WMC, Paradigm, Smith Group or Vontobel, as the case may be, a sub-advisory fee from its own advisory fee rather than each Fund paying WMC, Paradigm, Smith Group or Vontobel a fee directly. WMC, Paradigm, Smith Group and Vontobel provided, and the Board reviewed, information comparing the fees charged by WMC, Paradigm, Smith Group and Vontobel for services to the respective Sub-Advised Funds versus the fee rates of WMC, Paradigm, Smith Group and Vontobel for providing advisory services to other comparable investment companies or accounts or compared to their standard fee schedule, as applicable. Based on a review of this information, the Board noted that the fees charged by WMC,
197 |
Board Considerations of Advisory Contracts and Fees (continued)
(unaudited)
FIRST INVESTORS EQUITY FUNDS
Paradigm, Smith Group and Vontobel, as the case may be, for services to each applicable Sub-Advised Fund appeared competitive to the fees WMC, Paradigm, Smith Group and Vontobel charge to their other comparable investment companies or accounts or compared to their standard fee schedule, as applicable.
The Board also reviewed the information compiled by Lipper comparing each Fund’s Class A share total expense ratio, taking into account FIMCO’s expense waivers (as applicable), and the ratio of the sum of actual management and other non-management fees (i.e., fees other than management, transfer agency and 12b-1/non-12b-1 fees) to other funds in its Peer Group, including on a quintile basis. In considering the level of the total expense ratio and the ratio of the sum of actual management and other non-management fees, the Board took into account management’s explanation that: (i) the Funds have average account sizes that are relatively small compared with the industry average for equity funds; (ii) there are significant costs involved in providing the level of personal service that the First Investors fund complex seeks to deliver to its shareholders; (iii) the custodial fees for shareholders who invest in the Funds through retirement accounts are paid by the Funds and are reflected in the Funds’ total expense ratio, and a significant majority of the shares of the Funds are held in retirement accounts; and (iv) Lipper expense comparisons do not take into account the size of a fund complex, and as a result, in certain cases the First Investors funds are compared to funds in complexes that are much larger than First Investors. The Board also noted that Lipper’s customized expense groups tend to be fairly small in number and the funds included in the Peer Group generally change from year to year, thereby introducing an element of randomness that affects comparative results each year. While recognizing the limitations inherent in Lipper’s methodology, the Board believed that the data provided by Lipper was a generally appropriate measure of comparative expenses.
The foregoing comparisons assisted the Trustees by providing them with a basis for evaluating each Fund’s management fee and expense ratio on a relative basis.
Profitability. The Board reviewed the materials it received from FIMCO regarding its revenues and costs in providing investment management and certain administrative services to the Funds. In particular, the Board considered the analysis of FIMCO’s profitability with respect to each Fund, calculated for the year ended December 31, 2011, as well as overall profitability information relating to the past five calendar years. The Board also considered the information provided by FIMCO comparing the profitability of certain publicly-traded mutual fund asset managers as analyzed by FIMCO based on publicly available financial statements. In reviewing the profitability information, the Board also considered the “fall-out” or ancillary benefits that may ac-
198 |
crue to FIMCO and its affiliates as a result of their relationship with the Funds, which are discussed below. The Board acknowledged that, as a business matter, FIMCO was entitled to earn reasonable profits for its services to the Funds.
Economies of Scale. With respect to whether economies of scale are realized by FIMCO as a Fund’s assets increase and the extent to which any economies of scale are reflected in the level of management fee rates charged, the Board considered that the Advisory Agreement fee schedule for each Fund includes breakpoints to account for management economies of scale.
“Fall Out” or Ancillary Benefits. The Board considered the “fall-out” or ancillary benefits that may accrue to FIMCO, WMC, Paradigm, Smith Group and Vontobel as a result of their relationship with the Funds. In that regard, the Board considered the fact that FIMCO, WMC, Paradigm, Smith Group and Vontobel receive research from broker-dealers that execute brokerage transactions for the funds in the First Investors fund complex. However, the Board noted that FIMCO and the sub-advisers must select brokers based on each Fund’s requirements for seeking best execution. The Board also considered that Paradigm executes brokerage transactions for the Special Situations Fund through the use of an affiliated broker-dealer and that this also provides a source of fall-out benefits to Paradigm. The Board considered the profits earned or losses incurred by ADM and the income received by FIC as a result of FIMCO’s management of the First Investors funds.
* * * |
In summary, based on all relevant information and factors, none of which was individually determinative of the outcome, the Board, including a majority of the Independent Trustees, approved the renewal of the Advisory Agreement and each Sub-Advisory Agreement.
199 |
FIRST INVESTORS INCOME FUNDS
FIRST INVESTORS EQUITY FUNDS
Trustees and Officers*
Length of | ||||
Time Served | Number of | Other | ||
Position(s) | (including with | Portfolios in | Trusteeships/ | |
Name, Year of Birth | Held with | Predecessor | Fund Complex | Directorships |
and Address | Funds | Funds) | Overseen | Held |
DISINTERESTED TRUSTEES | ||||
Susan E. Artmann (1954) | Trustee | Since 11/1/12 | 37 | None |
c/o First Investors | ||||
Legal Department | ||||
110 Wall Street | ||||
New York, NY 10005 | ||||
Principal Occupation During Past 5 Years: | ||||
Executive Vice President and Chief Financial Officer of HSBC Insurance North America (since 2012); Executive Vice | ||||
President and President (2008-2011) and Chief Financial Officer (2000-2008) of HSBC Taxpayer Financial Services. | ||||
Mary J. Barneby (1952) | Trustee | Since 11/1/12 | 37 | None |
c/o First Investors | ||||
Legal Department | ||||
110 Wall Street | ||||
New York, NY 10005 | ||||
Principal Occupation During Past 5 Years: | ||||
Chief Executive Officer, Girl Scouts of Connecticut (since October 2012); Executive Director of UBS Financial | ||||
Services, Inc. and Head of Stamford Private Wealth Office (2002-2012). | ||||
Charles R. Barton, III (1965) | Trustee | Since 1/1/06 | 37 | None |
c/o First Investors | ||||
Legal Department | ||||
110 Wall Street | ||||
New York, NY 10005 | ||||
Principal Occupation During Past 5 Years: | ||||
Chief Operating Officer (since 2007), Board Director (since 1989) and Trustee (since 1994) of The Barton | ||||
Group/Barton Mines Corporation (mining and industrial abrasives distribution); President of Noe Pierson | ||||
Corporation (land holding and management services provider) (since 2004). | ||||
Stefan L. Geiringer (1934) | Trustee | Since 1/1/06 | 37 | None |
c/o First Investors | ||||
Legal Department | ||||
110 Wall Street | ||||
New York, NY 10005 | ||||
Principal Occupation During Past 5 Years: | ||||
President and owner of SLG Energy LLC (energy consulting) (since 2010); Co-Founder and Senior Vice | ||||
President of Real Time Energy Solutions, Inc. (energy consulting) 2005-2010; President and owner of SLG, Inc. | ||||
(natural gas shipper) (since 2003). |
200 |
Length of | ||||
Time Served | Number of | Other | ||
Position(s) | (including with | Portfolios in | Trusteeships/ | |
Name, Year of Birth | Held with | Predecessor | Fund Complex | Directorships |
and Address | Funds | Funds) | Overseen | Held |
DISINTERESTED TRUSTEES (continued) | ||||
Robert M. Grohol (1932) | Trustee and | Trustee since | 37 | None |
c/o First Investors | Chairman | 6/30/00 and | ||
Legal Department | Chairman since | |||
110 Wall Street | 1/1/10 | |||
New York, NY 10005 | ||||
Principal Occupation During Past 5 Years: | ||||
None/Retired | ||||
Arthur M. Scutro, Jr. (1941) | Trustee | Since 1/1/06 | 37 | None |
c/o First Investors | ||||
Legal Department | ||||
110 Wall Street | ||||
New York, NY 10005 | ||||
Principal Occupation During Past 5 Years: | ||||
None/Retired | ||||
Mark R. Ward (1952) | Trustee | Since 1/1/10 | 37 | None |
c/o First Investors | ||||
Legal Department | ||||
110 Wall Street | ||||
New York, NY 10005 | ||||
Principal Occupation During Past 5 Years: | ||||
Self-employed, consultant (since 2008); Senior Partner, Ernst & Young, LLP, Leader, Mid-Atlantic Asset | ||||
Management Practice (2003-2007). |
*Each Trustee serves for an indefinite term with the Funds, until his/her successor is elected.
201 |
FIRST INVESTORS INCOME FUNDS
FIRST INVESTORS EQUITY FUNDS
Trustees and Officers* (continued)
Length of | ||||
Time Served | Number of | Other | ||
Position(s) | (including with | Portfolios in | Trusteeships/ | |
Name, Year of Birth | Held with | Predecessor | Fund Complex | Directorships |
and Address | Funds | Funds) | Overseen | Held |
OFFICER(S) WHO ARE NOT TRUSTEES | ||||
Derek Burke (1964) | President | Since 2012 | N/A | None |
c/o First Investors | ||||
Management Company, Inc. | ||||
Raritan Plaza I | ||||
Edison, NJ 08837 | ||||
Principal Occupation During Past 5 Years: | ||||
Director (since 2012) and President (since 2011) of First Investors Management Company, Inc., and Admin- | ||||
istrative Data Management Corp.; Board of Managers and Chief Executive Officer of First Investors Advisory | ||||
Services, LLC (since 2012); Consultant, Burke Consulting (2010-2011); UBS - Managing Director, Co-Head of | ||||
Investment Solutions (2009-2010) and Managing Director, Head of Institutional, Retirement and Fund Services | ||||
(2004-2009). | ||||
William Lipkus (1964) | Vice President | Since 2012 | N/A | None |
c/o First Investors | ||||
Legal Department | ||||
110 Wall Street | ||||
New York, NY 10005 | ||||
Principal Occupation During Past 5 Years: | ||||
Chief Executive Officer (since 2012), President (since 2012), Treasurer (since 1999), Chief Financial Officer | ||||
(since 1997) and Chief Administrative Officer (since 2012) of First Investors Consolidated Corporation; Chair- | ||||
man (since 2012), Director (since 2007), Chief Financial Officer (since 1998) and Chief Administrative Officer | ||||
(since 2012) of First Investors Management Company, Inc.; Chairman (since 2012), Director (since 2012), | ||||
Treasurer (since 1999), Chief Financial Officer (since 1997) and Chief Administrative Officer (since 2012) of | ||||
Administrative Data Management Corp.; Vice President (since 1996), Treasurer (since 2008),Chief Financial Of- | ||||
ficer (since 1998) and Chief Administrative Officer (since 2012) of First Investors Life Insurance Company; and | ||||
Board of Managers and Chief Financial Officer of First Investors Advisory Services, LLC (since 2012). |
202 |
Length of | ||||
Time Served | Number of | Other | ||
Position(s) | (including with | Portfolios in | Trusteeships/ | |
Name, Year of Birth | Held with | Predecessor | Fund Complex | Directorships |
and Address | Funds | Funds) | Overseen | Held |
OFFICER(S) WHO ARE NOT TRUSTEES (continued) | ||||
Joseph I. Benedek (1957) | Treasurer | Since 1988 | N/A | None |
c/o First Investors | ||||
Management Company, Inc. | ||||
Raritan Plaza I | ||||
Edison, NJ 08837 | ||||
Principal Occupation During Past 5 Years: | ||||
Treasurer of First Investors Management Company, Inc. | ||||
Mary Carty (1950) | Secretary | Since 2010 | N/A | None |
c/o First Investors | ||||
Legal Department | ||||
110 Wall Street | ||||
New York, NY 10005 | ||||
Principal Occupation During Past 5 Years: | ||||
Assistant Counsel of First Investors Management Company, Inc., since 2010. Special Counsel and Associate at | ||||
Willkie Farr & Gallagher LLP (1998-2009). | ||||
Marc S. Milgram (1957) | Chief | Since 2010 | N/A | None |
c/o First Investors | Compliance | |||
Legal Department | Officer | |||
110 Wall Street | ||||
New York, NY 10005 | ||||
Principal Occupation During Past 5 Years: | ||||
Investment Compliance Manager of First Investors Management Company, Inc. (2009-2010); First Investors | ||||
Federal Savings Bank, President (2000-2011), Treasurer (1987-2011) and Director (2004-2011); First Investors | ||||
Corporation, Vice President (2008-2009); Administrative Data Management Corp., Vice President (2008-2009); | ||||
and First Investors Name Saver, Inc. f/k/a/ School Financial Management Services, Inc., Treasurer since 1992 | ||||
and Director (1992-2007). |
203 |
Shareholder Information | ||
Investment Adviser | Underwriter | |
First Investors Management | First Investors Corporation | |
Company, Inc. | 110 Wall Street | |
110 Wall Street | New York, NY 10005 | |
New York, NY 10005 | ||
Custodian | ||
Subadviser | (Income Funds except International | |
(International Opportunities Fund) | Opportunities Bond Fund) | |
Brandywine Global Investment | The Bank of New York Mellon | |
Management, LLC | One Wall Street | |
2929 Arch Street | New York, NY 10286 | |
Philadelphia, PA 19104 | ||
Custodian | ||
Subadviser | (International Opportunities Bond Fund and | |
(Fund For Income) | the Equity Funds) | |
Muzinich & Co., Inc. | Brown Brothers Harriman & Co. | |
450 Park Avenue | 40 Water Street | |
New York, NY 10022 | Boston, MA 02109 | |
Subadviser | Transfer Agent | |
(Global Fund) | Administrative Data Management Corp. | |
Wellington Management Company, LLP | Raritan Plaza I – 8th Floor | |
280 Congress Street | Edison, NJ 08837-3620 | |
Boston, MA 02210 | ||
Independent Registered Public | ||
Subadviser | Accounting Firm | |
(Select Growth Fund) | Tait, Weller & Baker LLP | |
Smith Asset Management Group, L.P. | 1818 Market Street | |
100 Crescent Court | Philadelphia, PA 19103 | |
Dallas, TX 75201 | ||
Legal Counsel | ||
Subadviser | K&L Gates LLP | |
(Special Situations Fund) | 1601 K Street, N.W. | |
Paradigm Capital Management, Inc. | Washington, D.C. 20006 | |
Nine Elk Street | ||
Albany, NY 12207 | ||
Subadviser | ||
(International Fund) | ||
Vontobel Asset Management, Inc. | ||
1540 Broadway, 38th Floor | ||
New York, NY 10036 |
204 |
A description of the policies and procedures that the Funds use to vote proxies relating to a portfolio’s securities is available, without charge, upon request by calling toll free 1-800-423-4026 or can be viewed online or downloaded from the EDGAR database on the Securities and Exchange Commission’s (“SEC”) internet website at http://www.sec.gov. In addition, information regarding how the Funds voted proxies relating to portfolio securities during the most recent 12-month period ended June 30, is available, without charge, upon request in writing or by calling 1-800-423-4026 and on the SEC’s internet website at http://www.sec.gov.
The Funds file their complete schedule of portfolio holdings with the SEC on Form N-Q for the first and third quarters of each fiscal year. The Funds’ Form N-Q is available on the SEC’s website at http://www.sec.gov; and may also be reviewed and copied at the SEC’s Public Reference Room in Washington D.C. Information on the operation of the Public Reference Room may be obtained by calling 1-800-SEC-0330. The schedule of portfolio holdings is available, without charge, upon request in writing or by calling 1-800-423-4026.
205 |
NOTES
206 |
NOTES
207 |
NOTES
208 |
NOTES
209 |
Item 2. Code of Ethics
As of September 30, 2012, the Registrant has adopted a code of ethics that applies to the Registrant's principal executive officer and principal financial officer.
For the year ended September 30, 2012, there were no waivers granted from a provision of the code of ethics. On May 17, 2012 a revision was made to the code of ethics to reassign to the Chief Compliance Officer certain oversight and reporting responsibilities previously handled by the Chief Legal and Regulatory Officer of First Investors Consolidated Corporation.
A copy of the Registrant's code of ethics is filed under Item 12(a)(1).
Item 3. Audit Committee Financial Expert
During the reporting period the Registrant's Board determined that it had at least two "audit committee financial experts" serving on its audit committee. Arthur M. Scutro, Jr. and Mark R. Ward were the "audit committee financial experts" during all or part of the period and were considered to be "independent" as defined in Item 3 of Form N-CSR.
Item 4. Principal Accountant Fees and Services | ||||
Fiscal Year Ended | ||||
September 30, | ||||
----------------- | ||||
2012 | 2011 | |||
---- | ---- | |||
(a) Audit Fees | ||||
First Investors Income Funds | $118,750 | $106,750 | ||
(b) Audit-Related Fees | ||||
First Investors Income Funds | $ 0 | $ 0 | ||
(c) Tax Fees | ||||
First Investors Income Funds | $ 20,000 | $ 17,000 | ||
Nature of services: tax returns preparation and tax compliance | ||||
| ||||
(d) All Other Fees | $ 0 | $ 0 | ||
First Investors Income Funds | ||||
(e)(1) Audit committee's pre-approval policies
The Charter of the Audit Committee requires the Audit Committee (a) to pre-approve, and to recommend to the full Board, the selection, retention or termination of the independent auditors to provide audit, review or attest services to the First Investors Funds (“Funds”) and, in connection therewith, evaluate the independence of the auditors and to obtain the auditors’ specific representations as to their independence; (b) to pre-approve all non-audit services to be provided to the Funds by the independent auditor; and (c) to pre-approve all non-audit services to be provided by the Funds’ independent auditor to the Funds’ investment adviser or to any entity that controls, is controlled by or is under common control with the Funds’ investment adviser and that provides ongoing services to the Funds, if the engagement relates directly to the operations and financial reporting of the Funds. The Audit Committee has not adopted pre-approval policies or procedures to permit the services in (b) and (c) above to be pre-approved by other means.
(e)(2) None, or 0%, of the services relating to the Audit-Related Fees, Tax Fees and All Other Fees paid by the Registrant and Related Entities disclosed above were approved by the Audit Committee pursuant to paragraph (c)(7)(i)(C) of Rule 2-01 of Regulation S-X (which permits audit committee approval after the start of the engagement with respect to services other than audit review or attest services, if certain conditions are satisfied).
(f) Not Applicable
(g) Aggregate non-audit fees billed by the Registrant's accountant for services rendered to the Registrant and the Registrant's investment adviser and any entity controlling, controlled by, or under common control with the adviser that provides ongoing services to the Registrant for the two fiscal years ended September 30, 2012 and 2011 were $49,500 and $47,500, respectively.
(h) Not Applicable
Item 5. Audit Committee of Listed Registrants
Not applicable
Item 6. Schedule of Investments
Schedule is included as part of the report to shareholders filed under Item 1 of this Form.
Item 7. Disclosure of Proxy Voting Policies & Procedures for Closed-End Management Investment Companies
Not applicable
Item 8. Portfolio Managers of Closed-End Management Investment Companies
Not applicable
Item 9. Purchases of Equity Securities by Closed-End Management Investment Companies and Affiliated Purchasers
Not applicable
Item 10. Submission of Matters to a Vote of Security Holders
There were no material changes to the procedure by which shareholders may recommend nominees to the Registrant's Board of Trustees.
Item 11. Controls and Procedures
(a) The Registrant's President and Principal Financial Officer have concluded that the Registrant's disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940, as amended) are effective, based on their evaluation of these disclosure controls and procedures as of a date within 90 days of the filing date of this report.
(b) There were no changes in the Registrant's internal control over financial reporting that occurred during the second fiscal quarter of the period covered by this report that have materially affected, or are reasonably likely to materially affect, the Registrant's internal control over financial reporting.
Item 12. Exhibits
(a)(1) Code of Ethics - Filed herewith
(a)(2) Certifications pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 - Filed herewith
(b) Certifications pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 - Filed herewith
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
First Investors Income Funds
By | /S/ | DEREK BURKE |
Derek Burke | ||
President | ||
Date: | November 28, 2012 |
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
By | /S/ | DEREK BURKE |
Derek Burke | ||
President | ||
By | /S/ | JOSEPH I. BENEDEK |
Joseph I. Benedek | ||
Treasurer and Principal Financial Officer | ||
Date: | November 28, 2012 |